How does a company get listed on stock exchanges?

Lets us know -How a company goes public, it would help us to know why they want to go public and trade on the stock market.

Why a Company Goes Public

The company goes public because the private business owners decide to sell ownership in their company in order to trade on the stock market: to raise money. Going public is often the best way for an already successful business to raise capital.

There are two major options for businesses to raise money:

  1. Take out a business loan
  2. Sell ownership in the company

When a company goes public that means they are selling ownership in their company.

If the company wants to expand their business, it's required to hire new talented individuals, opening for more locations or any number of reasons that require obtaining more capital at the risk of giving up ownership in their business. Tough decisions, you need to decide why to go public by taking a look at the advantages and disadvantages.

It is the biggest matter of pride for any company to go public, there is a certain process which a company needs to follow in order to come out with an Initial Public Offering (IPO). The IPO Process

APPOINTING AN INVESTMENT BANK

Every bank, whether it is public or private have an investment division which takes care of the IPO process. All one needs to do is to fix up a meeting with any of the banks and pay the required fees. Thereafter, it is the job of the bank to make the company public.

REGISTRATION FORMS TO SEBI

The entire finance and investment markets in India is an autonomous body which is regulated by the SEBI’s(stock exchange board of India) where it is a sole purpose is to provide transparency and protect the investor. Every IPO has to mandatorily registration with SEBI and once it gets the approval, the IPO is ready to get listed on the exchanges.

RED HERRING PROSPECTUS

The Red Herring Prospectus is a document which contains all the information about the IPO - the size of the IPO, financial statements, company history and the future plan of the company.

ADVERTISING

Advertising includes everything from hoardings to giving interviews to news channels and magazines. Basically, the more your company is talked about, the more demand it will attract from the investors, which will in turn help in a better listing price on the exchanges. Just Dial, Twitter & Facebook have used heavy advertising to promote and attract investors.

 

PRICE BAND SET BY INVESTMENT BANK

The investment bank first gets to know about the financial statements of the company and sets a price band for prospective investors to bid within the price band. whereas, retail investors are not the only players who participate in the bidding process whereas Mutual funds, institutional investors, hedge funds, and insurance companies also participate in the bidding process. The process of bidding between price bands is known as price discovery. The price is set on the basis of demand and supply. Bidding for shares means not to bid for one share.

BOOK BIDDING PROCESS

Once the bidding is done, the banks need to identify the issue is over-subscribed or under-subscribed. If the issue is over-subscribed, then the banks release that the shares are at the highest band and the share is listed.

If you wish to know when the right time to buy a stock is, you can get to know by calculating the price-to-earnings ratio (P/E ratio). This ratio is calculated by dividing the share price of the current stock by the earnings per share.