Investment Banking Tutorials
- Investment Banking Basics
- What is Investment Banking? (Overview of what do they actually do!)
- Investment Banking Functions
- Investment Banking vs Commercial Banking
- Equity Research in an Investment Bank
- What is Asset Management Company AMC
- Sales and Trading in Investment Banking
- Private Placement, IPO and FPO in Investment Banking
- Investment Banking – Underwriters and Market Makers
- Investment Banking – Mergers and Acquisitions
- Investment Banking – Restructuring and Reorganisation
- Investment Banking Roles and Responsibilities
- Market Makers
- Propreitary Trading
- Deal Origination (Sourcing)
- Initial Public Offering (IPO)
- Price-Weighted Index
- Publicly Traded Companies
- Top 4 Must Know Investment Banking Charts (Free Download Template included)
- Pitch Book | Guide to Investment Banking Pitch Book (Examples)
- What is LBO?
- Leverage buyout Lbo Analysis
- LBO Financing
- Capital Budgeting
- Capital Budgeting Methods
- Capital Budgeting Examples
- Capital Budgeting Process
- Trading Floor
- Limit Order
- Block Trade
- Gray List
- Market Order vs Limit Order
- Bid vs Ask
- Bid vs Offer Price
- Industry vs Sector
- Merchant Bank
- Money Market Account
- Best Investment Banking Books
- Nasdaq vs Dow Jones
- Nasdaq vs Nyse
- Differences Between NSE and BSE
- SWOT Analysis
- SWOT Analysis Examples
- PEST Analysis Example
- Investment Banking Careers (24+)
- Investment Banking Firms (27+)
- Top Banks (42+)
- Mergers and Acquisitions (45+)
- Cryptocurrency Basics (10+)
What is Publicly Traded Company?
A publicly traded company is a company which has listed itself on at least one public stock exchange and has issued securities for ownership in the company to public investors. The company makes itself public through a process known as Initial Public Offering which has to be approved by the Securities and Exchange Regulator of any country.
A certain percentage of the shares are issued to the public but generally, the controlling stake resides with the majority shareholder. A company going public means the secondary market can determine the value of the entire company through trading between investors.
Examples of Publicly Traded Companies
Shares of such companies are traded in the open market between retail investors and institutional investors. Generally, privately held companies due to the requirement of large amounts of capital opt to become public after fulfilling all regulatory requirements. The examples of public traded companies are Procter and Gamble, Google, Apple, Tesla etc.
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Advantages of Publicly Traded Companies
- Publicly traded companies have some distinct advantages than privately held companies such as the ability to sell future stakes in equity, raising more capital by issuing stocks, more diverse investors etc. However, being public makes such organizations vulnerable to increased regulatory scrutiny and far less control over the decisions of the company by owners and company founders.
- Additionally, companies have to release annual reports and other mandatory documents as instructed by the securities regulator and shareholders also have the right of additional documents.
- Also, shareholders get a vote during certain company decisions such as changing of the corporate structure. Such companies can also opt to become private if the owners buy back all the shares from their shareholders either at a premium or discount based on company performance.
Disadvantages of Publicly Traded Companies
- Publicly traded companies have access to a huge amount of capital since they can issue additional stock and attract new investors. Also, they do not have any major liquidity concerns since it has access to a lot of investors. Privately held companies do not have ready access to capital and can engage in selling shares to venture capital and private equity players when they want to.
- While publicly traded companies have to comply with strict regulatory requirements as mandated by the securities and exchange commission of the country, privately held companies do not have any such mandatory requirements.
- Privately held companies have to report when they reach $10 million in assets and more than 500 shareholders. Publicly traded companies have to file mandatory annual reports, quarterly reports etc. and additional information must be shared with the company’s shareholders. Valuation of a publicly traded company is much easier since there is a lot of information available for the company. This is because of the mandatory reporting requirements by the securities regulator.
- They can be valued by Discounted Cash Flow, Comparable Company Analysis and Transaction Method. Although the valuation of privately held firms is done through the above three methods, they are less reliable due to lack of information.
How does a Private Company go Public?
Private organizations go public through a method called Initial Public Offering. They take the help of investment bankers to prepare a prospectus for the same and if possible underwrite the issue. The investment bankers also do their due diligence in finding out what would be the best offer price.
- A team is formed for an external IPO which will comprise of various stakeholders such as underwriters from investment banks, lawyers, certified accountants and Securities Regulator experts.
- Proper details and information such as financial performance and expected future results are then compiled in the company prospectus and sent for review to the abovementioned stakeholders.
- The financial performance mentioned in the prospectus is then audited by external auditors to generate an opinion.
- The company then files its prospectus with the Securities and Exchange Commission and provides any mandatory documents that are required by the Commission and sets a date for the offering.
A publicly traded company is a company which has listed itself on at least one public stock exchange and has issued securities for ownership in the organization to public investors. Being a publicly traded company has advantages such as access to huge amounts of capital and increased liquidity while there are certain disadvantages such as a lot of regulatory scrutinies and adhering to reporting requirements.
Such companies stocks are listed on stock exchanges and can be bought or sold in secondary or over the counter markets. Privately held company shares are traded and owned only by a few private investors. Such companies can also opt to become private if the owners buy back all the shares from their shareholders either at a premium or discount based on company performance.
This has been a guide to what is publicly traded company and its definition. Here we discuss the examples of publicly traded companies along with their advantages and disadvantages. You may learn more about our articles below on accounting