What is the point of a company going public?
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11-27-2012, 06:48 AM
Post: #1
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What is the point of a company going public?
Why can't we just make things and sell things- in other words. Why do we need to have stock markets and why does that improve a company?
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11-27-2012, 06:56 AM
Post: #2
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so they can sell stock and raise capital
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11-27-2012, 06:56 AM
Post: #3
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By going public, the company raises capital/cash that can be re-invested into the company. For example, rumor has it that Facebook will be going public and is expected to raise over $20 billion. Now some of that will go to Mark Zuckerberg and others who own stock already, but a good chunk will go right to Facebook, the company which can then be used to hire more programmers to invent more products (to sell), invest in the company's infrastructure (more and/or faster servers to increase customer service and satisfaction).
In many cases, especially manufacturing firms, the need to go public is paramount to expansion as the amount of cash that might be required would be too large to ask for a bank loan. |
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11-27-2012, 06:56 AM
Post: #4
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Going public and selling stock allows a company to raise large amounts
of money to do things like expand, build new plants, hire more people, set up operations in more countries, etc. It is all about raising money for an opportunity to make more money. If the company is successful (profitable) doing this, then the stock becomes in demand, the price goes up, and the stockholders get to share in the company profits. Maybe even get a dividend. Owners of the company, who usually have large chunks of stock, can get fabulously wealthy overnight. It is rare that a private company can raise these kinds of funds using nothing but private capital. The down side of going public is that the directors of the company now have to answer to stockholders when things go poorly, when hiring or firing directors, etc. |
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