Jet Blue Ipo Valuation
IPO Valuation
FIN-605
Md. Miran Hossain College of Business Colorado State University
10 September, 2012
1. What are the advantages and disadvantages of going public? Discuss the IPO process. The Advantages of Going Public Financial Benefit The financial benefit in the form of raising capital is the most distinct advantage of going public. Capital can be used to fund research and development, fund capital expenditure or even used to pay off existing debt. Moreover, once the company is public, it has access to a new and liquid source of capital for any future needs it may have. Increased Public Awareness As IPOs often generate publicity by making a company’s products known to a new group of potential customers, it created public awareness of the company. Achieve Optimal Capital Structure Adding equity lowers the leverage (debt/equity ratio) of the company and helps equip the company with the tools to achieve optimal capital structure. The lowered leverage is, in fact, preferred by the lenders. Therefore, with the new equity in hand, a company can add a larger amount of debt, which will, in turn, result in a significantly higher debt/equity ratio. Increased market value The value of public companies tends to be higher than that of comparable private companies due to increased liquidity, available information, and a readily ascertainable value. Enhanced benefits for current employees Stock-based compensation incentives align employees’ interests with those of the company. By allowing employees to benefit alongside the company’s financial success increase productivity and loyalty to the company and also serve as a key selling mechanism to attract skillful human resource. Furthermore, issuing equity-based compensation will allow the company to attract top talent without incurring additional cash expenses.
The Disadvantages of Going Public An Expensive Process The cost of obtaining equity funding is an expensive process. Typical expenses
FIN-605
Md. Miran Hossain College of Business Colorado State University
10 September, 2012
1. What are the advantages and disadvantages of going public? Discuss the IPO process. The Advantages of Going Public Financial Benefit The financial benefit in the form of raising capital is the most distinct advantage of going public. Capital can be used to fund research and development, fund capital expenditure or even used to pay off existing debt. Moreover, once the company is public, it has access to a new and liquid source of capital for any future needs it may have. Increased Public Awareness As IPOs often generate publicity by making a company’s products known to a new group of potential customers, it created public awareness of the company. Achieve Optimal Capital Structure Adding equity lowers the leverage (debt/equity ratio) of the company and helps equip the company with the tools to achieve optimal capital structure. The lowered leverage is, in fact, preferred by the lenders. Therefore, with the new equity in hand, a company can add a larger amount of debt, which will, in turn, result in a significantly higher debt/equity ratio. Increased market value The value of public companies tends to be higher than that of comparable private companies due to increased liquidity, available information, and a readily ascertainable value. Enhanced benefits for current employees Stock-based compensation incentives align employees’ interests with those of the company. By allowing employees to benefit alongside the company’s financial success increase productivity and loyalty to the company and also serve as a key selling mechanism to attract skillful human resource. Furthermore, issuing equity-based compensation will allow the company to attract top talent without incurring additional cash expenses.
The Disadvantages of Going Public An Expensive Process The cost of obtaining equity funding is an expensive process. Typical expenses