Every business needs a fund flow so that they can finance their day-to-day business operations. The company has two ways to raise funds: through equity and debt. This article will cover the basics of IPO vs FPO, their key features, and how they function in the financial market. What is the role of investors, and how are they useful to the investors and the issues. Inequity, the company raises funds via public or private investments. On the other hand, debt takes a loan and repays it fixed interest and time.
Equity holds the approaches of various individuals to sell their shares at a fixed price. When this is done, this process is called an IPO. On the other hand, when the shares are offered for sale for the subsequent public contribution, this is known as the FPO.
IPO and FPO are two major terms when discussing the financial market. It plays a major role in the business. What do IPO and FPO stand for? These differences will also help in keeping you on the right track. These are probably the few fundamentals that a beginner should know before investing in the share market.
What is an IPO?
IPO is the first time a company goes from private to public. Going public here means the company offers the investors their shares to hold ownership. In short, this means the company will get listed on the country’s stock exchange.
The company becomes a part of BSE and NSE when it goes up for an IPO. It offers the shares to get publicly traded. This initial offering of the company shares is called an IPO.
What does going public mean to a company and the investors?
When an IPO hits the primary market, it implies that the company gets funding from the investors’ investments. This comes with many more responsibilities as a company has to look forward to the fact that none of its shareholders runs into losses. Opening a company to the public also means that the liquidity ratio will increase.
In terms of the investors, they would get ownership of the company. Going public also opens up different options such as ESOP or employee stock ownership plans when a company goes public.
The company can also develop different offerings, such as employee stock ownership. This has benefits like profit sharing. However, this comes with a condition if a company performs extremely great in its revenue and profit.
What is FPO?
Here is a complete insight into what an FPO is. So, FPO (Follow on Public Offer) is a process in which an already listed company on the share market comes with new shares for more investors or the existing one. This is under the secondary market. The companies introduce FPO to diversify their equity base, which is majorly generating more capital.
The company comes for an FPO after it goes through IPO. This is to make more of the company shares available to the public or raise capital to expand or pay off debt.
What it means for the company
The company uses the FPO to raise capital to expand or pay off debt. This plays a major role if a company needs more investments and is looking for investors.
Types of FPO
There are two types of FPO, i.e., dilutive and non-dilutive. In the case of dilutive, it offers new shares, and in the case of non-dilutive, it means the existing private shares are offered publicly.
Diluted Follow-on Offering
A diluted follow-on offering refers to when a company issues additional shares to the public market. The number of shares increases and the earnings per share decreases.
Non-Diluted Follow-on Offering
Non-diluted follow-on offerings are when the company offers its investors the existing shares, privately held shares, and they open up the shares to the market for sale. Let’s discuss IPO vs FPO Comparison.
How is an IPO different from FPO?
Now coming up to the IPO vs FPO comparison. IPO denotes the first public issue of the shares for the private companies going public. On the other hand, the FPO denotes the company already listed on the sharemarket coming up with new shares to offer the public. These shares can be new or private.
Talking about the IPO, it is released to raise capital through public investment. On the other hand, FPO is released with the intention of the inflow of subsequent public investment.
An IPO is way riskier than the one as an investor doesn’t know what may happen with the company in the future. Will the company raise the amount and give them a profit? On the other hand FPO, investors have details about the company’s performance as it has already been listed on the stock exchange. So this makes it easier for an investor to understand how it may perform and future aspects.
So, in short, the risk factor can be more in IPO, while in FPO, it is low. The main purpose of an IPO is to raise the capital for the company through public investments, while the main aim of the FPO is the subsequent public investment.
IPO vs FPO Comparison Chart
| BASIS FOR COMPARISON | IPO | FPO |
| Meaning | It refers to the company offering its shares for the first time to the public. In this process, the company turns public from private. | FPO refers to the security offering to the public when the company is already listed. They offer new or private shares to the client. |
| Issuer | Unlisted company | Listed company |
| Raising Capital | The first time though public | subsequent public contribution |
| Risk | High | Comparatively low |
| Objective | Raising capital through public investment. | subsequent public investment |
| Predictability | Less predictable | More predictable |
| Profit | Higher than FPO | Lower than IPO |
| Types | Equity shares and Preferred shares | Dilutive offering and Non-Dilutive offering |
Conclusion – IPO vs FPO Comparison
In conclusion, the article concludes on the difference between IPO and FPO and how it works for the company and the investors. Both aims are the same to increase the capital or the investment funds and grow the company. Enquire now with us.
