The full form of FPO is Follow-on Public Offer.
FPO is a type of capital raising method used by publicly listed companies to raise additional funds from the public. This is typically done after the company has gone public and has already been listed on a stock exchange. The process involves the issue of new shares to the public, and the funds raised are used to finance the company’s expansion plans or to repay outstanding debts.
Understanding FPO (Follow-On Public Offer)
At the time of its listing, a company may launch its Initial Public Offering (IPO) to raise capital for its operations by offering shares to the public in exchange for investment. The shares offered can be new shares issued by the company, old shares held by the promoters, or private shares. These are classified as dilutive (new) shares and non-dilutive shares.
When a company issues follow-on dilutive shares, it aims to reduce its debt by increasing the number of shares outstanding. This, in turn, decreases the company’s earnings per share (EPS), altering its capital structure. Non-diluted offerings, on the other hand, are secondary offerings where no new shares are being issued. Only old, privately-held shares are being offered to the public, and the EPS remains unchanged.
An At-The-Market (ATM) offering is based on the price band, with the FPO price being determined by market forces, as opposed to an IPO where the price is predetermined within a limited range. The company has the option to withdraw from issuing shares if the market price is not favorable on that day, allowing them to raise capital as and when needed.
The purpose of an FPO is to dilute the ownership of existing shareholders, but in exchange, the company is able to raise additional capital. The process is similar to an initial public offering (IPO), but the difference is that an FPO is done after the company has already gone public.
An FPO can also be beneficial to exist, shareholders, as it can lead to an increase in the company’s market capitalization and overall value, thereby leading to a higher stock price. However, the company’s management should carefully evaluate the need for an FPO and ensure that the funds raised will be used for productive purposes that will ultimately benefit the company and its shareholders.
Also check Full Form of PVR
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