In this episode of
Money Creation Explained we are going to cover How IPO's
(Initial Public Offerings) Create New Money Supply.
An IPO’s (Initial Public Offering) is when a company raises
money from the public to expand their startup or seasoned
business and sells off a lot of its shares of its company to
the public in the form of stocks. In the US, the 3 biggest
exchanges are the New York Stork Exchange, Nasdaq Stock
Exchange, and OTC (Over The Counter) Markets. Investors
invest in IPO’s which they believe have a great potential
for growth and revenues in order to obtain ownership over a
small percentage of the company. Later they may sell their
shares to make a good return on their initial investment.
Companies have the power to develop new technologies or take
raw materials and turn them into a finished product from the
total of all the components or offer a service, etc. This
ability allows companies to create value and real needed
services and products that others would not be able to do on
their own or do not want to do and charge higher prices than
their combined costs to make a profit. Taking this concept a
step further and selling shares in their company on the
Stock Exchange creates new money supply into the economy
that would not be there if this company was not created.
Figuring out what a company is worth is never easy. For
mature companies with steady revenues it’s a matter of
taking their earnings for that year plus other industry
specific details and calculating the value over time. For
startups with no revenue they use factors such as cost to
duplicate, future potential, valuation by stage, and the
like. While this real world valuation method is okay in
theory, Wall Street can inflate companies that go public
with valuations that do not make sense. Many times a company
that has no sales and only a concept and vision has
attracted a lot of private investors and those investors
want to get a return on investment, so Wall Street puts that
the company’s worth in the 100’s of millions of dollars or
even billions of dollars. IOU Notes is a peer-to-peer credit
and loan platform.
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