How Public Companies Raise Capital
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by: Frank Roberson
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In a standard fashion, public companies are able to raise capital through the sale of their securities. This is one of the most important features of public companies, as opposed to private companies; they can advertise their offerings (public offerings) and attract investor capital. It is it very difficult to obtain large amounts of capital for private companies.
Raising capital, the classic scenario:
The stock of a public company is often traded on a stock exchange. The value or "size" of a public company is called the market capitalization, often called "market cap". This is figured by the multiplication of the outstanding shares by the price per share. (Authorized, but not issued shares, do not count). As an example, let’s say a company with 10 million outstanding shares and a price per share of $5.00 would then have a market cap of $50 million.
Trading volume can affect the price per share when selling (in a negative way) and when buying (in a positive way). Thus, the number of trades in a given period of time, commonly referred to as the "trading volume" is important when determining true market value. The higher the volume, the more the market value of a given company is reflected in its market capitalization.
Public companies can raise capital easier than private companies; they may use their stock as compensation for corporate personnel, such as directors, officers, and employees.
Other ways of raising capital:
Venture capitalists also provide funding for companies. However, the capital comes with a string of conditions, to include seats on the board of directors. If you wish to retain control of your company, this should be something to avoid.
Investment Bankers and broker/dealers also invest in promising companies. It works as such: The company issues the bankers or dealers time-restricted stock at less than market rates. The bankers and broker/dealers then provide the company with capital while holding the issued stock for the agreed time period.
Needless to say, the experience and service of a competent securities attorney is much in demand when public companies wish to raise capital. The finer nuances of raising capital can be a confusing affair even for financially trained professionals, and even more so for the lay person.
Article Source: http://www.ArticleStreet.com/
About the Author
Frank roberson is an experienced financial consultant providing consultation and advice on how a public company can raise capital. Please visit Mr. Roberson's website for more information.
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