Publicly traded companies
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Publicly traded companies are entities that offer their equity or shares of stock to the public through a regulated stock exchange. This allows anyone, regardless of their financial status, to purchase a piece of the company and become an owner. Publicly traded companies are held to rigorous standards of transparency, reporting, and regulatory compliance. They must adhere to strict disclosure laws, including regular financial statements to the public, which helps to protect the public's best interests. This heightened level of transparency helps to promote investor confidence and garner more investment.
Example of publicly traded companies
- Apple Inc. (AAPL) - Apple Inc. is a technology company that designs, manufactures, and sells consumer electronics, software, and online services. It is one of the world's most valuable and recognizable companies, with its products and services being used by millions of people around the world. Apple is a publicly traded company whose shares are listed on the NASDAQ stock exchange.
- Microsoft Corporation (MSFT) - Microsoft Corporation is a technology company that develops, manufactures, licenses, and supports a range of software products and services. It is one of the world's largest software companies, with its products being used by millions of people around the world. Microsoft is a publicly traded company whose shares are listed on the NASDAQ stock exchange.
- Amazon.com Inc. (AMZN) - Amazon.com Inc. is an e-commerce company that sells a variety of products and services, including books, music, electronics, and apparel. It is one of the world's largest online retailers and is a publicly traded company whose shares are listed on the NASDAQ stock exchange.
- Alphabet Inc. (GOOGL) - Alphabet Inc. is the parent company of Google and several other subsidiaries. It specializes in Internet-related services and products, such as online advertising technologies, search engine, cloud computing, software, and hardware. Alphabet is a publicly traded company whose shares are listed on the NASDAQ stock exchange.
- Walmart Inc. (WMT) - Walmart Inc. is a retail company that operates a chain of discount department stores and grocery stores. It is one of the world's largest companies and is a publicly traded company whose shares are listed on the New York Stock Exchange (NYSE).
Types of publicly traded companies
Publicly traded companies are a type of business structure that allows any individual to buy and own a piece of the company. There are several different types of publicly traded companies, including:
- Large-cap companies: These are typically multi-billion dollar corporations, often household names with a wide variety of products and services. They have a long history of performance, with a wide following of investors.
- Mid-cap companies: These are smaller in size than large-cap companies, but still offer significant potential for growth. They often have a more focused or specialized product or service offering.
- Small-cap companies: These are the smallest of publicly traded companies, but they can offer significant returns with the potential for high growth. They are often the riskiest investments, but also the most rewarding.
- Micro-cap companies: These are the smallest publicly traded companies, and usually the riskiest investments. They often require more research and due diligence, since they are relatively unknown and involve higher levels of risk.
- Specialty companies: These are companies that focus on a specific industry or sector, such as biotech or technology. They present higher risk, but also more potential for higher returns.
- Exchange-traded funds (ETFs): These are investment funds that hold assets such as stocks, bonds, and other securities. They trade like a stock and provide exposure to a variety of assets.
Steps of creating publicly traded company
The following steps are required to become a publicly traded company:
- Conducting a financial audit: A publicly traded company must be prepared to undergo a full financial audit to verify that all its financial records are accurate and up-to-date. This audit must be conducted by a qualified accountant or auditing firm.
- Meeting legal requirements: A company must meet all legal and regulatory requirements to become publicly traded. This includes filing the necessary paperwork with the Securities and Exchange Commission (SEC) and registering the company's shares with the stock exchange.
- Issuing stock: To become publicly traded, a company must issue shares of stock that can be purchased by the public. This is done through an Initial Public Offering (IPO).
- Obtaining listing: Once the company has issued its shares and filed with the SEC, it must seek listing on a stock exchange. This is done through an application process that includes submitting financial documents and other information about the company.
- Creating a disclosure policy: A publicly traded company must have a comprehensive disclosure policy that outlines how the company will communicate with the public. This includes issuing regular financial statements and press releases to keep investors informed.
- Developing a corporate governance structure: A publicly traded company must also create a corporate governance structure that outlines the roles and responsibilities of the company's board of directors and executive officers. This helps to ensure that the company is managed in the best interests of its shareholders.
Advantages of publicly traded companies
Publicly traded companies offer a number of advantages to owners, investors, and the public. These include:
- Increased Valuation: By making the company's stock available to the public, the company's valuation increases, allowing the company to raise capital more easily and grow more quickly.
- Liquidity: Publicly traded companies are highly liquid, meaning that investors can quickly and easily buy and sell the company's stock, allowing them to get in and out of a position quickly.
- Diversification: By owning a piece of a publicly traded company, investors can diversify their portfolios and spread risk across multiple investments.
- Transparency: Publicly traded companies are held to the highest level of transparency and disclosure, which helps to increase investor confidence and attract more investment.
- Regulatory Compliance: Publicly traded companies must adhere to strict regulatory standards, including regular financial statement filings. This helps to protect the public's best interests and ensure that the company is operating ethically.
Limitations of publicly traded companies
Publicly traded companies have several limitations. These include:
- Lack of control: Investors have very little control over how the company is run, as the majority of voting power rests in the hands of the executives who run the company.
- High volatility: Publicly traded companies are highly volatile due to the fact that their stock prices are driven by the stock market, which is subject to frequent fluctuations.
- Short-term focus: Publicly traded companies often focus on short-term goals, such as quarterly earnings and stock price performance, which can lead to neglect of long-term strategic objectives.
- Regulatory compliance: Companies must comply with a stringent set of laws and regulations, which can be costly and time consuming.
- Dilution of ownership: As more shares are issued, investors lose voting power and their ownership stakes are diluted.
In addition to offering stock to the public, there are several other approaches related to publicly traded companies. These include:
- Mergers and Acquisitions – Publicly traded companies often engage in mergers and acquisitions to increase their market capitalization and expand their product and service offerings. This can give investors access to a larger pool of potential investments, diversify their portfolios, and increase potential returns on their investments.
- Initial Public Offering (IPO) – An IPO is the process of a private company becoming a publicly traded company. It involves the sale of shares to the public in order to raise funds for the company. IPOs can be a great way for companies to generate capital for growth, and for investors to get in on the ground floor of a potentially profitable company.
- Share Buybacks – Share buybacks are a way for a publicly traded company to buy back shares from the public in order to reduce the number of outstanding shares. This can help to increase the value of the remaining shares by reducing the overall supply, thus increasing the demand.
Overall, publicly traded companies have numerous approaches to ensure the best interests of their shareholders are served. These include offering stock to the public, engaging in mergers and acquisitions, participating in IPOs, and executing share buybacks. These strategies help to ensure that investors can maximize the potential of their investments.
Suggested literature
- Jermakowicz, E. K., & Gornik-Tomaszewski, S. (2006). Implementing Ifrs from the perspective of Eu publicly traded companies. Journal of international accounting, auditing and taxation, 15(2), 170-196.
- Panwar, R., Paul, K., Nybakk, E., Hansen, E., & Thompson, D. (2014). The legitimacy of Csr actions of publicly traded companies versus family-owned companies. Journal of Business Ethics, 125, 481-496.
