Confused about going for the difference between IPO and FPO? What’s worth an honest investment depends on both your risk level and your goals. When it comes to investing in the stock market, the terms IPO and FPO are two important basics that every investor should know before entering the stock market.
IPO (Initial Public Offering) and FPO (Follow on Public Offering) are the main concepts used by companies for their own purposes to raise funds on the stock market.
Newbies looking to invest in an IPO should have a basic knowledge of these two fundamentals that are widely practiced in the stock market. This article details the difference between IPO and FPO.
What does IPO mean?
IPO, short for Initial Public Offering, is the process by which a private company issues shares to the public for the first time. A company that offers shares to the public is known as an “issuer” and does so under the direction of several investment banks. Once the IPO is complete, the company’s shares will trade on the open market.
Fundraising is the primary reason private companies go public. By selling shares on the open market, a company can raise money to raise capital and successfully grow its business.
Types of IPO
There are 2 types of IPO:
List price issue
The fixed price issue means that the company sets a fixed price for all shares and states it in the offering document. In this type of his IPO, all investors know the price of certain shares set by the company before the company goes public. They pay a fixed price full price while applying for the IPO of a particular company.
Book building issue
The problem with book building is that companies don’t set prices, they set price ranges. Prices are determined only after investor demand has been generated and recorded.
What does FPO mean?
FPO Meaning: FPO stands for Follow on Public Offer and is the process by which an already listed company issues shares to the company’s existing shareholders or new investors.
The company’s reason for implementing its FPO is to expand its equity base. The company will only use its FPO after it has initiated the IPO process to take its shares to the public and raise capital for the company.
More simply, FPO is another topic and IPO is the first. FPO is imposed for two purposes:
- Reduce the debt that exists in the company.
- Raise additional capital for the company.
Types of FPO
There are two different types of FPO:
In a diluted FPO, an additional number of shares are issued by the company, but the price value per share of the company remains the same. As a result, the stock price falls, and so do the earnings per share.
A non-dilutive FPO means that the company’s shareholders sell their privately held shares in the market. Using this method increases the number of shares available to investors, but does not increase the number of shares in the company.
What is The Basic Difference Between IPO and FPO?
An IPO is the first public offering of shares by a publicly traded private company. While an FPO is a second or subsequent public offering of shares by an already listed company. There are 3 key differences that will help you understand the difference between IPO and FPO.
IPO and FPO full form
- IPO – Initial Public Offering
- FPO – Follow on Public Offer
Difference Between IPO and FPO – Objective
The purpose of an IPO is to raise capital from investors by selling shares to the general public to grow and expand the business.
Once the company completes its IPO and achieves its goal of growing the business. It may need additional funding and that is where its FPO is issue for the company.
The main goal of companies issuing FPOs is to increase their equity base. However, FPO can also be use to reduce promoter holdings.
Difference Between IPO and FPO – Performance
Performance is the key difference between IPO and FPO as it indicates how much knowledge or information an investor has about a company before buying its allotted shares.
When going public, investors should review a preliminary document from the company known as her Red Hering prospectus. They have no major guidance or track record for the companies they invest in. Therefore, they appear to be joining the IPO because of their on-book operating debt, market interest, etc.
At FPO, the investor not only knows all the important information about the company but also the market interest and track record of the company’s performance post-IPO. However, selling a holding can give investors a signal as to whether the stock is worth investing in.
Difference Between IPO and FPO – Profitability
Since the investors participate in the initial growth of the company. IPOs can prove to be more profitable than FPOs, offering higher returns to investors.
An FPO tends to be less risky than an IPO because investors have all the information about the company.
Another advantage is that investors have the opportunity to analyze the company’s past performance and speculate about the company’s growth before investing.
FPO will be less profitable than his IPO as the company is in the stabilization stage at this point.
The level of risk must be very high to invest in an IPO, as you don’t have many ideas about the company. Alternatively, FPO is a relatively safe bet for both new and retail investors Investing in an IPO requires more research than investing in FPO.
For an IPO, you should learn about the company’s fundamentals. And you can check the upcoming IPO calendar in advance to know where and how to invest. Recommended for long-term investors. Another important factor related to the difference between IPO and FPO is that of risk and reward. An IPO usually comes with the potential to win more cash.
Read Also: PFI Full Form And What is PFI?