how any companies share price is valued ,in its ipo?
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A new company and set any price it wants in its own IPO. Usually, though, they get advice on what to set it at. It is an asking price, and if they set it too high, they will not get too many people to buy it and it will be an unsuccessful IPO, which is not a good thing, since they will be seen as not a good thing to buy, which will depress the stock price even lower.
Success breeds success and failure breeds failure.
Companies typically use Investment Banks to value their company as a whole. This is done through various financial analyses that discount back the future value of a company added to its current value– a very tricky and involved financial process– which is why these I-Banks make out like bandits when the actual IPO occurs.
The objective of these I-Bankers is to figure out the worth of the company and then they will be able to derive an appropriate share price for the IPO with this equation:
“Value of Company”/ Number of Shares = Share Price
If they value the company at 1 billion dollars, and they want to offer 100 million shares, they should set the IPO for $10.
If they’ve undervalued the company in the public’s eye, these shares will sharply rise after the IPO; if they’ve overvalued the company shares will decline after IPO or might not even sell at all.