FPO Meaning: what is FPO & their types?
When reading about businesses trying to raise money for operations or expansion, you may have come across the words "IPO" or "FPO." However, since there are fewer FPOs than IPOs, Initial Public Offering (IPO) is more widely heard than Follow-on Public Offering (FPO).
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What exactly is FPO?
An FPO is a stock market mechanism for issuing shares to customers. It's a way for a corporation to raise new equity funds to help them manage their operations or carry out their growth plans. The FPO concept is that any public offering made after the IPO qualifies as an FPO.
What is the difference between an IPO and an FPO?
In an IPO, the corporation is not trading publicly until it goes public. As a result, it is a reasonably high-risk venture since the new investor will not be familiar with the company's track record.
An FPO, on the other hand, is only available if the firm is still publicly traded. It helps investors observe industry dynamics and track their future investments for some time before deciding.
Though private businesses use IPOs to finance investment, government agencies often use FPOs to offset deficits, losses or to minimize their interest in the business.
What are the types of IPOs and FPOs?
There are two types of IPOs:
1. Offers with a set price
The original business shares are offered at a set price in a fixed price sale, as the name implies. The corporation sets the price, and buyers are informed of the equity values before the company's initial public Offering.
2. Book Publishing Services
A bidding process is used in the book-building Offering. The price of a share is not set in stone. It is negotiated by a bidding procedure, with the final cost determined after the bidding is completed. The purchaser must state how many shares they want and how much they are willing to pay for them.
FPOs classified into two categories:
1. dilutive Offering
A dilutive FPO occurs when a corporation tries to raise more money by releasing more shares it's done to pay off loans. In the case of a dilutive FPO, however, a company's valuation remains unchanged, resulting in a reduction in the company's per-share earnings.
2. Non-dilutive Offering
In this situation, the company's owners or significant shareholders sell part of their stock to the general public. The money goes to the person who is selling the bonds, not the company. As a result, the company's earnings per share were unchanged.
Investing in initial public offerings (IPOs) and initial public offerings (FPOs) carries various risks. Though IPOs have a high level of risk, they may also yield higher income. FPOs, on the other hand, are more credible since the firm is listed and there is more detail available about the stock market path.
It can be difficult to fully comprehend the complexities of each form of investment, including its benefits, drawbacks, and limitations. If you want to invest in an FPO but aren't sure how to go about it, you should hire an investment broker to help you. Get in contact with one right away to begin planning for your financial future!