Follow-on Public Offer (FPO)
What is FPO?
A follow-on public (FPO) is defined as the issuance of shares to investors by a company listed on a stock exchange. When it comes to stock market investments, the term IPO and FPO are two important factors that every investor must know before entering into the financial market.
The basic reason behind the company performing an FPO is to expend its equity base. The company uses FPO only after starting the process of an IPO to make their shares available to the public and to raise capital for their business.
In simple words, FPO is a further issue while IPO is the first issue in financial market.
The FPO is raised for two conditions:
1. To reduce the existing debt of the company
2. To raise additional capital for a company
Types of FPO
There are two types of FPO are as follow
• Dilutive FPO
In dilutive FPO, the additional number of shares are issued by the company, but their company’s share price value still remains the same. This decreases the share price as well as reduce the earning per share.
• Non-Dilutive FPO
Non-Dilutive FPO can be defined as when shareholders of the company sell their private shares in the market. Applying this method increase the number of shares available to the investors while it does not increase the number of shares for the company.
Key Difference between IPO and FPO
There are three major differences between IPO and FPO are as follows:
• IPO VS FPO – Objective
The objective of an IPO is to capital from investors by selling its shares to the general public to grow and expand its business area. Once the company has done its IPO and to achieve the goal to grow its business, they may need additional funds, and that’s where FPOs are issued for a company.
• IPO VS FPO – Performance
Performance is a major difference between FPO and IPO because it tells how much knowledge an investor needed to buy allotted shares. Investors do not have any major guidance or track record about a company in which they are investing.
In FPO, investors should know all essential information about company along with a track record of what the market interest was like and how was the company’s performance after an IPO.
• IPO VS FPO – Profitability
IPO can give higher returns for an investor and turn out to be a profitable option other than FPOs because investors take part in the starting growth of the company. FPOs tend to have less risk than IPOs since all the information has been available to investors for investment.