Question

Explain the factors that a firm should consider when deciding whether to undertake an Initial Public Offering.

Answer 1

Q: Factors that company should consider when it decides to make an initial public offering (IPO).

The sucess and Failure of the initial Public offering (IPO) depends up on the state of financial market , domestic and international. It is main process by which every facets of organisation depends up on. So management and Board of directors takes decesions very carefully when it comes a time to initiate public offering.

A: Suitability of Corporation:

Potential; When initial public offering time comes, it is a matter of consider that if thge company has much potental in terms of record growth of past ,its strong financial structure. A company can attract market by its good financial structure, products, services which will create competitive advantages for it.

Size: A corporation must have market value after issuance of ipo as institutional investors go on heavy valuation of share value for company.

Assets: The company should have enough networth to be able to go for public offering. it makes the company base to go for it.

Business plan: The company should have thorough business planing for it.

Market condition: The company should scan the market whether it is best time to go for public or not. it must know it competitors status. the company should go accoding to its strength and weakness.

Management and Board of Directors: The management is the only team which can access the company's strength and financial condition whether and when to take decesion about issuing public offers.

Corporate Structure and Governance: The company must consider its corporate existing, capital, mangement and governance whether it is appropriate for public offers or not.

Internal control: The company should have good inetrnal system, process and procedures that are capable of supporting initial public offering and beneficial to investors by its financial information during IPO issue.

Cost Of IPO: Cost of IPO should be well planned that can be well adjusted before and after of public issuance.

Accounting Disclosure: The company should havwe well cleared accounting system but not have any issue regarding accounting issue because it can affect its ipo issue . si it must disclose allk facts in prospectus.

Underwriters: The company should have good underwriters relationship , as they have the power and well structured network who can bring and subscribe more ipo to the public and to market. They must have good track record.

Benefit of Going Public:

Gaining financial growth

Stability in the Business and the market

Liquidity

Reputation and brand image in the market.

Merger and acquisition

Access to capital etc.