Why does a company go for an IPO?

Answer 1

An IPO stands for Initial Public Offering. It is the process in which a large company issues shares to the general public for the first time to raise cash and capital for its expansion and business usage. There are two basic ways to raise money for something like an expansion: selling part of the equity of the company through a stock sale, and creating debt by selling bonds. There are advantages and disadvantages to both. In the case of selling equity, the major disadvantage is the loss of some of your autonomy. Investors hate to lose money, and want to make sure you're doing what it takes to make money. The upside is once you've sold the stock, you don't necessarily have any further expenditures. A lot of companies, especially high-tech ones, don't pay dividends. Also, dividends are paid out of after-tax profits. If you sell bonds, you must pay interest on time or risk default. The tradeoff here is there's not much loss of autonomy, and bond interest payments come out of pre-tax income.