What is an initial public offering (IPO)?

An initial public offering (IPO) refers to the process through which a private company offers its shares to the public for the first time. This key event allows the company to raise capital from public investors, transitioning from private to public ownership. By selling shares, the company can fund new projects, pay off debt, or expand its operations.

The IPO process involves several steps, including preparing financial statements, filing with regulatory bodies, and determining the price at which shares will be offered. Once the IPO is completed, the company’s shares begin trading on a stock exchange, making them available for purchase by individual and institutional investors.

Understanding the significance of an IPO is crucial for investors, as it not only provides a chance to invest in a potentially growing company but also entails risks associated with stock market fluctuations and the company's future performance.