What is an Offering Price?
An offering price is the price at which a company lists its shares, bonds, or other securities on an exchange.
How Does an Offering Price Work?
For example, let's say the founders of Company XYZ want to sell half of their shares. They need buyers and would like to offer their shares to members of the general public. In order to do that, Company XYZ hires an underwriter, which determines the value of the shares and creates an offering memorandum that discloses important information about the company to potential buyers. The offering price of the shares is $12. The underwriters then conduct the offering, which facilitates the sale of the shares to the public via the stock exchange.
Why Does an Offering Price Matter?
Offerings are a way to raise capital, which is what companies need to grow and access cash. If a stock offering is the first of its kind for a company, this is called an initial public offering (or IPO). It is important to note that offerings are not limited to stock offerings, however; bonds and a variety of other securities also circulate via offerings. The offering price reflects the price at which the buyers are willing to buy and the sellers are willing to sell, but often the price will change immediately after the stock begins trading. A much higher closing price on the first day of trading can suggest whether the company 'left money on the table' by pricing the offering too cheaply.
