A company conducts an initial public offering, or IPO, when it sells its shares of stock to the public for the first time. The number of shares a company has outstanding at any given time is the number of shares that investors own. The shares outstanding before an IPO are typically held by employees, company executives and early investors, such as venture capital firms. After a company issues new shares in an IPO, the number of shares outstanding increases. You can calculate the shares outstanding before an IPO using information from a company’s IPO prospectus.
Download a company’s 424(b) filing from the U.S. Securities and Exchange Commission’s online EDGAR database. This filing contains the prospectus, which discloses information about the company’s IPO.
Find the number of shares the company expects to have outstanding after the IPO, listed in the prospectus. For example, assume a company expects to have 500 million shares outstanding after its IPO.
Identify the number of new shares the company plans to sell to the public in its IPO, listed in the prospectus. Also identify any stock split of the pre-IPO outstanding shares that may take place at the time of the IPO. In this example, assume the company plans to sell 200 million shares in its IPO and plans a 2-for-1 stock split of its pre-IPO shares at the time of the IPO. This means the company will issue two shares for every pre-IPO share of stock outstanding at the time of the IPO.
Subtract the number of new shares the company plans to issue in the IPO from the number of shares it expects to have outstanding after the IPO. In this example, subtract 200 million from 500 million to get 300 million.
Divide your result by the number of shares the company plans to issue for every share of stock in the stock split to calculate the number of shares outstanding before the IPO. Concluding the example, since the company plans to issue two shares of stock for every one share in the split, divide 300 million by 2 to get 150 million shares outstanding before the IPO.
- U.S. Securities and Exchange Commission: Initial Public Offerings (IPO)
- Stanford University: Cardinal Money Management -- Shares Outstanding
- The Role of Labour Mobility and Informal Networks for Knowledge Transfer; Dirk Fornahl et al.
- International and U.S. IPO Planning: A Business Strategy Guide; Frederick D. Lipman
- Valuation Estimates and Takeover Activity: Modern Empirical Developments; B. Espen Eckbo
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