Simple Does It: The IPO

Simple Does It: The IPO

We here at MomVesting continue our simple approach to the basics of all things investing. For this go-around, it's the IPO's turn. Not to be confused with the Intellectual Property Office or the International Psycho-Oncology Society, this IPO definitely has a place in the financial and investing world.

According To Webster

In terms of finance, an IPO is an initial public offering (IPOs adds an "s" to the offering). Not too complicated a concept, the IPO is often associated with a young, up-and-coming company who has just put their shares out there for the public to trade for the first time.

It's also worth noting that you'll occasionally see older, more established companies who've traditionally been private come into the public eye and offer shares in an IPO. Young or old, a company has to be registered with the Securities and Exchange Comission prior to an IPO.

Why Companies Offer IPOs

There could be a few reasons a company might go ahead and do the IPO thing. Say a small company has just a few shareholders within it, and they decide they want to sell some of their shares of the company. An IPO would help them by offering shares to the public. Another reason a company would initiate an IPO is to help it grow. IPOs often can be a means for companies to obtain substantial amounts of moolah to help them get out of a stalled period and into expansion.

Risky Business

As you can imagine, initial public offerings from a newer company can come with their share of risks. Here are two things to keep in mind when weighing the risks of a company's IPO:

  • Difficult to Analyze: First off, if the company is on the young side, there's probably not a whole lot of data out there to help analyze how their shares will fair on the market.
  • Mucho Debt Possible: Second, these companies could be on the small side and come with a lot of debt attached to them.

The investing world does not have to be mystical or require a degree in finance to successfully participate. With our "Simple Does It" series, MomVesting strives to take a bit of the mystery out of investing and finances. Keep watching for more on our series in the future!

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Financial Definitions - Glossary for Understanding Finances wrote:

Thu, 01/19/2012 - 21:46 Comment #: 1

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