When a public company increases the number of shares issued, or shares outstanding, through a secondary offering, it generally has a negative effect on a stock’s price and original investors’ sentiment.
Going Public
First, a company goes public with an initial public offering (IPO) of stock. For example, XYZ Inc. has a successful IPO and raises $1 million by issuing 100,000 shares. These are purchased by a few dozen investors who are now the owners, or shareholders, of the company. In the first full year of operations, XYZ produces a net income of $100,000.
One of the ways the investment community measures a …
