FPO Full Form:- Every business activity requires funds to successfully execute ideas and achieve predetermined financial goals. If a company wants to develop a new product, it needs capital for R&D, manufacturing and marketing. The same need for capital leads to expansion, which is seen as a fundamental factor in increasing a company’s profitability. However, as the company grows larger and aims for better profitability, the capital requirement increases drastically. Almost all companies try to avoid taking debt from financial institutions because excessive debt can have a negative impact on the company’s balance sheet.
In such a situation, where companies want to raise funds without borrowing, they look towards Initial Public Offerings. IPO is a means for a company to get listed on the stock exchange and allow trading of its shares on the exchange. When a company offers its equity to the public for the first time, it is called an “initial public offering (IPO)”. However, what happens when the company seeks to raise more capital a few years after the IPO? This is where they take advantage of the process of raising capital called a follow-on public offer (FPO).
What is FPO?
FPO is a process of issuing shares to investors in the stock exchange. It is a means of raising additional equity capital to meet the requirement of the company to run its operations or execute its expansion plans. Essentially, FPO means that any public offering made after an IPO constitutes an FPO.
How is IPO Different from FPO?
In an IPO, the company is unlisted before its initial public offering. This makes it a relatively high-risk investment as a potential investor may not have a track record of the company to analyze before investing.
On the other hand, an FPO is offered when the company is already listed. This allows investors to watch market trends and track their potential investments over a period of time before making a decision. While IPOs are used by private companies to fund expansion, many government entities use FPOs to cover their debts or losses or to reduce their stake in the company.
What Does This Mean for the Company: FPO Full Form
When a company is set up, it receives funding from various corporations, investors, angel investors, venture capitalists, and sometimes even the government. Once a company reaches a substantial level of expansion and these funds dry up or are insufficient, a company launches an IPO, goes public for the first time and gets listed on the exchanges.
This means that apart from getting funding for the company when you invest in it, it also comes with a huge responsibility of running the company in an efficient manner so that its shareholders do not incur losses. It also means increased liquidity for the company.
What Does This Mean for Investors?
Buying a share or a number of shares in a company means that you are getting partial ownership of the company. Once a company goes public, it also opens up options such as ESOPs or Employee Stock Ownership Plans. A company may offer stock ownership to employees which also has benefits such as profit sharing.
What is FPO?
As the name suggests, FPO is a follow-up to an IPO. Follow-on public offer is the issuance of shares after the company is listed on the stock exchange. In other words, FPO is an additional issue while IPO is a preliminary or first issue.
FPO Full Form: Mean for the Company?
FPO is done to raise additional capital or to reduce existing debt and a company does it in two ways:
Mixed FPO: In dilutive FPO, the company issues an additional number of shares in the market for the public to buy though the value of the company remains the same. This lowers the price of the shares and automatically lowers the earnings per share.
Non-Dilutive FPO: A non-dilutive IPO occurs when large shareholders of the company such as the board of directors or founders sell their privately held shares in the market. This technique does not increase the number of shares for the company, just increases the number of shares available to the public. Unlike Dilutive FPO, since this method is doing nothing to the number of shares of the company, it does nothing to the EPS of the company.
This Mean for Investors?
If we differentiate between IPO and FPO, FPO is a cheaper and safer option as compared to FPO. When it comes to FPO, you already have an idea about the company, business, management strategy, financials and all other parameters.
Should you Subscribe to FPO?
- FPOs are generally considered to have an advantage compared to IPOs as investors get an idea about the company’s management, business practices and potential growth.
- A company listed on a stock exchange is not new, and investors will find historical context for its earnings reports, stock market performance, and much more data for the bank.
- FPO carries less risk than IPO as the price fixed for IPO is less than the market price to attract the shareholders to invest more in the FPO.
- Many shareholders buy shares in FPOs at a discounted market price and sell them in the market to earn a premium on their transactions.
- FPO requires a lot of research to know about the company and its past performance, but a homework degree in FPO is very easy.
- Hence it is good for risk-averse investors and gives them an opportunity to access the shares of the company at a discounted price.
Slim Follow-up Offering: FPO Full Form
A diluted follow-on offering occurs when a company issues additional shares to raise funds and offers those shares on the public market. As the number of shares increases, the earnings per share (EPS) decreases. The funds raised during an FPO are often allocated to reduce debt or change the capital structure of the company. The free cash flow bodes well for the company’s long-term outlook, and thus, bodes well for its shares.
Non-Diluted Follow-on Offering
A non-diluted follow-on offering occurs when holders of existing, privately held shares bring previously issued shares to the public market for sale. The cash proceeds from the non-diluted sale go directly to shareholders who place the stock on the open market.
In many cases, these shareholders are the company’s founders, members of the board of directors, or pre-IPO investors. Since no new shares are issued, the company’s EPS remains unchanged. Non-diluted follow-on offerings are also called secondary market offerings.
At-the-Market (ATM) Offering
An at-the-market (ATM) offering gives the issuing company the ability to raise capital as needed. If the company is not satisfied with the available price of the shares on a given day, it may refrain from offering the shares. ATM offerings are sometimes referred to as controlled equity distributions because of their ability to sell shares in the secondary trading market at the current prevailing price.
Key Differences Between IPO and: FPO Full Form
There are three major differences that will help you understand the difference between IPO and FPO:
IPO vs FPO – Objective
- The purpose of an IPO is to raise capital from investors by selling their shares to the general public to grow and expand their business.
- Once the company does its IPO and has achieved the goal of expanding its business, it may need additional funds, and that is where FPOs are issued for a company.
- The primary objective of a company issuing an FPO is to expand its equity base. However, FPO can also be used to dilute the promoter’s shareholding.
IPO vs FPO – Performance
- Exposure is a major difference between FPO and IPO as it refers to how much knowledge or information the investor knows about the company before buying the allotted shares.
- In an IPO, the investors have to go through a preliminary document by the company known as Red Herring Prospectus.
- They don’t have any great guidance or track record about the company they are investing in. Thus, they make an assumption on the basis of management debt, market interest, and more on the books to subscribe to the IPO.
- In FPO, investors get to know all the necessary information about a company as well as its track record, how was the market interest and the performance of the company after the IPO.
- However, through the sale of equity shares, investors are given an indication of whether the shares are worth investing in or not.
FAQs on FPO Full Form
What is the full form of IPO and FPO?
IPO (Initial Public Offering) and FPO (Follow on Public Offer) are the major concepts which are used by the companies for their own purpose to raise capital from the equity market. Every newbie who wants to invest in an IPO must have basic knowledge about these two fundamentals which are widely used in the stock market.
What is the full form of FP0?
FPO stands for Follow-on Public Offering. It is the issue of shares by the company which is already listed on the stock exchange. It is usually offered by a company after an IPO or initial public offering. Is also known as a secondary offering.
What does FPO mean in sales?
FPO abbreviated Follow on Public Offer is a process in which an existing company listed on the stock exchange issues new shares to existing shareholders or new investors.
What is FPO Who can apply?
A follow-on public offer (FPO) is the process of issuing shares to investors or existing ones. Shareholders by a public company that is already listed on an exchange. An FPO is essentially a stock issue of additional shares made by a company. That is already publicly listed and has gone through the IPO process.
Holders of existing shares may sell previously issued shares on the open market in a non-diluted follow-on offering. When stock is sold as a non-diluted follow-on public offering. The cash proceeds are passed on to the shareholders who sold the stock.
Is FPO government or private?
Concept of FPO:
To facilitate this process, the Small Farmers’ Agribusiness Consortium (SFAC). Was mandated by the Department of Agriculture and Cooperation, Ministry of Agriculture, Government of India. of India. To support the State Governments in the formation of Farmer Producer Organizations (FPOs).
What is the full form of FSA?
An arrangement through your employer that lets you pay for many out-of-pocket medical expenses with tax-free dollars. Allowed expenses include insurance reimbursement and deductibles, eligible prescription drugs, insulin, and medical equipment.
What is the full form of FBC?
A complete blood count (FBC) test looks for abnormalities in your blood. Such as an abnormally high or low number of blood cells. This common blood test can help diagnose a wide range of diseases, infections, and ailments. Your doctor may arrange for further tests to help determine the cause of the abnormality.
What is FPO in India?
What is FPO? The concept behind farmer-producer organizations is that farmers, who are producers of agricultural products, can form groups. To facilitate this process, Small Farmers Agribusiness Consortium (SFAC). Was mandated by the Department of Agriculture and Cooperation, Ministry of Agriculture, Govt.
What is an FPO business plan?
A good business plan for an FPO should handle financial matters. Well as address concerns related to the burden of agriculture in terms of input logistics and quality standards. Technology and satisfactory returns of efforts and investments in the FPO.
What is the benefit of FPO?
A farmer-producer organization helps small-scale producers not to fall into the trap and fall prey to middlemen. The right amount of profit. Monetary and savings benefits To which they are entitled, after all, are given by the FPO.
What are FPO and its Benefits?
FPO stands for Farmers and Producers Association. FPO is a group that is completely made up of farmers. A wide range of services including technical support, marketing, and processing. Well as other aspects of crop inputs are provided through Farmer Producer Organisations.
Is it good to buy FPO?
An FPO is relatively a safe bet for individual investors and new investors. Investing in an IPO requires more research than an FPO. You need to understand the fundamentals of the company. If you are a long-term investor. With a good risk appetite and faith in the company, then you can consider investing in IPOs.