IPO = Initial Public Offering
An Initial Public Offering (IPO) is the time at which a private company decides to offer shares of stock on a public exchange for the first time. IPO’s can be issued by any size company, but they typically tend to be smaller, less mature companies seeking capital to fund expansion. Because of this, trading and/or investing in IPO’s can be risky ventures since most companies participating are going through a transitory growth period, subjecting investors to a high-degree of uncertainty regarding future values.
An IPO requires an underwriter who works closely with the issuing company to determine offering price, number of shares to be issued, and the best time to bring it to market. The underwriter evaluates various aspects of the company such as the business model, financial performance, executive talent, and future expectations in order to make their ultimate “value” determination. The entire process involves lawyers, certified public accountants, and Securities and Exchange Commission (SEC) experts as well.
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