Initial Public Offering Price

Abstract:
In this paper we will discuss about the Initial Public Offering Price. It is the price at which the stock is going to be offered to the public. The determination of initial public offering price depends on several things, like market condition, growth rate of the company, profitability to name a few.
The determination of Initial Public Offering price depends heavily upon the company and market conditions. It is the price at which the underwriter offers the new issues to public. The underwriters keep several factors in their mind while setting the public offering price.

These are financial statements of the company, that is, if or not it is profitable, company’s growth rates, public trends, current market conditions, investor confidence to name a few. Sometimes the underwriters go for a road shows, widely recognized as the “dog and pony show”, to create a hype about their issues.

The determination of initial public offering price also depends on the success of those road shows.

Process of Fixing the Price:
Initial Public Offering Price is determined through several phases.

These are discussed below:
Firstly, the company and its underwriters determine a price range within which they are going to set their stock’s price.
Then the underwriter puts together a prospectus which comprises the price range. That prospectus is submitted to the Securities and Exchange Commission (SEC).
The next phase of pricing starts just before the day of offering. In this phase the company and its underwriter fix the final price at which the public can buy the issue.
Finally the phase of observation. That is, the company will observe its value assessment by the market after the issue starts trading.

 

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Last Updated on : 30th July 2013