Raising capital in public markets?

Question

1. How do public companies raise money after their IPO?

2. Market cap. I know the calculation, but what does this actually tell you? Just how big the company is?

Answer 1

They can raise money by borrowing (issuing debt) or they can have secondary stock offerings called secondary public offerings. Market cap is just how big the company is. A better measure of the value of a company is the enterprise value. That is the market value of the stock+ the market value of the preferred stock+ the market value of the debt- cash- minority interest. EV is a good measure of what a company would be valued at if it were to be purchased.

Answer 2

1. If an when a company wants to raise money after the issue of stock, then either they sell bonds in the market or they reinvest the earnings which is usually called retained income.

2. As you know the calculations, it is the number by which markets think of the company potentials. If the stock price is going up it means they are creating value for the share holders and in general stake holders as stock prices always reflect the prices after all dues are paid.

Answer 3

1. Companies can still borrow from banks, or issue bonds, or sell additional stock in a secondary equity offering.

2. Market cap tell you how much money you would have to spend if you wanted to buy the whole company (this happens every once in a while).