IPO questions?
Christal asks:
what is the IPO discount and comparable P/E? Suppose 14.0million shares outstanding before the IPO and a 4.0 million share IPO offering by company A. The price of IPO is $10/share. The pre-money should be calcuated as 14 million multiply by $10/share. I am a bit confused of it since 14 million shares should have its own stock prices before IPO and is already outstanding in market. How could this price for the new issue (IPO) could be used for the already outstanding stock to calcuate the pre-money? please give me some help.Thanks a lot
what is the IPO discount and comparable P/E? Suppose 14.0million shares outstanding before the IPO and a 4.0 million share IPO offering by company A. The price of IPO is $10/share. The pre-money should be calcuated as 14 million multiply by $10/share. I am a bit confused of it since 14 million shares should have its own stock prices before IPO and is already outstanding in market. How could this price for the new issue (IPO) could be used for the already outstanding stock to calcuate the pre-money? please give me some help.Thanks a lot
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Do you know what IPO stands for?
Your question is somewhat confusing but I will attempt to answer it with some information about IPOs.
When a company does an initial public offering (IPO), the company’s investment banking firm helps it determine how much the company is worth, how much money the company needs and how much the company might be able to raise in the public market. The investment bank does this by determining the equity value of the company, based on its financials statements and growth potential. It then determines a proposed amount of stock to sell to the public and a price for those shares by reference to other similarly situated companies, using P/E ratios (if the company is profitable), and other financial metrics (for companies that are not yet profitable, these ratios could involve price to sales, EBITDA to revenues etc.
All corporations have outstanding stock, but the stock usually does not have a trading market (unless there is some internal market). Some companies estimate the value of the stock or employ valuation firms to determine such estimates in order to establish strike prices for employee incentive options. After its IPO, the company usually will list the shares that it issued in the IPO on a securities exchange. Once the shares are issued, the market will determine the trading price for those shares. You could use this price as a basis to value the shares that have not been publicly issued, but since the shares not publicly issued would add to the supply of shares trading (should they become available to be publicly traded), the actual value of shares may be less than the trading price.
I’m confused by the term “pre-money”. Shares that are not issued in the IPO by definition cannot be trading in the market. Then are restricted shares and cannot be publicly traded under the securities laws unless a certain amount of time passes or an exemption from the securities registration laws is found.
IPO stand for INITIAL Public Offering.
If there is stock market price already, then there is stock in the hands of the public and you don’t have an IPO.