IPO Initial Public Offerings
Information on Going Public
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IPO Information: The IPO and Company Valuation
When a company has a long history of performance in a market and there's a lot of data available, it becomes much easier to predict the company's
value and understand what its securities are worth. IPOs, however, are a whole different ball game -- even if you read every word of a new public
company's prospectus twice over, you won't have all the IPO information available.
A public company's executives want to persuade investors that the value they offer matches the price of their stock. Dealing with valuation in a way
that proves they are serious, thorough, and detail-oriented is one way to raise investor confidence. But, since Initial Public Offerings are starting
from square one in a certain sense, there are many different ways to handle valuation.
To be clear: Valuation is one of the most important steps in the IPO process. It proves that you have the goods to deliver on your initial security price. Overvaluing
and undervaluing both have the potential to dampen investor confidence and ensure that you don't get the kind of capital support you need from your IPO filing.
Valuation in a company approaching its IPO is usually handled by a third party, usually the underwriter (IPO Guide) or an IPO advisory firm specializing in the task. The simplest way to
create a baseline for valuation is to look at the total value of the company's assets and the total value of its profits to date. Of course, the underwriter must also
discover what the market is willing to bear for the securities and what recent trends say.
Valuation can go bad when the parties involved overvalue the stock on the basis of performance that would require huge structural changes to achieve, acting as if it
can be done in one or two quarters. Likewise, many companies fail to do anything approaching proper valuation -- instead, they survey a select handful of
investors to discover their opinion.
Naturally, this is a limited way to handle valuation -- and it's one that saps a golden opportunity to introduce a new stock into a broad range of portfolios by giving
it the price it deserves.
For more IPO Information, including how to take a startup company public, please contact us using the information below.