A publicly traded company typically hires an investment bank to manage the sale of its stock. The cash flow the company actually receives from the sale of its stock is called the net proceeds, which is less than the value of the stock that the investment bank sells to investors. The difference is due to the investment bank’s fees. You can calculate a company’s net proceeds using information from its annual report.
1. Obtain a public company’s 10-K annual report from either the investor relations section of its website, or online from the U.S. Securities and Exchange Commission’s EDGAR database.
2. Find in the annual report the number of shares of stock the company sold, the issue price per share, as well as the commissions and fees it paid to sell the stock. This is known as the underwriter’s spread. For example, assume a company sold 100,000 shares at $8 per share and paid $50,000 in total commissions and fees.
3. Multiply the number of shares sold by the issue price per share to calculate the amount of stock sold. In this example, multiply 100,000 shares by $8 per share to get $800,000 in stock sold.
4. Subtract the total commissions and fees from the total stock sold to calculate the net proceeds, which is the cash flow from selling stock. Continuing with the example, subtract $50,000 in total commissions and fees from $800,000 in stock sold to get $750,000 in net proceeds from the sale.
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