How Does Capital Raising Affect Share Price?
Looking to learn more about the stock market and how the trends happen and what their underlying causes are? You might have heard a little bit about capital raising and found yourself wondering what the results of such an action are on share price. If so, you’re in the right place. Here is everything you need to know about capital raising and the effects it will have on a stock in the market.
What Is Capital Raising?
Any company needs money to do whatever it is that they do. As the saying goes, it costs money to make money. This is true for all the companies you see on the stock market today. They need to pay rent, keep the lights on, pay employees, conduct research, and produce quality goods and services that are worth having to their target audience. None of this comes free, and if they are looking to do a good job, it probably doesn’t come cheap, either!
Of course, not every business has the money they need right off the bat to invest in new products, innovations, strategies, and more. There are a lot of ways for a company to get the money they need to reach their goals.
Some methods include getting a loan or applying for a grant. They can use profits from previous products and services to invest in a new innovation. Or, they can ask shareholders to give them some money. This is referred to as capital raising. In most cases, this is done by some type of share issue. As a result, it dilutes the existing shares of a company.
What Happens to the Share Price After Capital Raising?
After the new share issue, the company in question will have more shares in circulation. However, these shares in general are worth slightly less than they had been before the new share issue took place. Obviously, the downside of this biotech capital raising is that the share price will go down after the capital raising occurs, but in many cases, it is worth the stock price taking a small dive in exchange for the benefits that come with the company having the cash they need to fulfill their goals.
Why Capital Raising?
Capital raising is an option to – obviously – raise capital. But if the result is a downturn in the share price, then why would companies choose to do it?
The most obvious benefit of using capital raising as opposed to other methods of raising the funds a company needs is the fact that capital raising comes with no ongoing cost. To contrast, a loan or other methods of getting the money they need fast comes with an ongoing cost.
For many companies, capital raising it worth the slight decrease in the value of their stock, especially if the purpose of the capital they are raising is to invest it into a new and innovative product or idea. This is because, if the purpose of this money yields a successful outcome, it may push the company to new heights. This would help the value of the stock to skyrocket to a new level and reach its highest point yet.
The world of shares can be a confusing terrain to try to navigate on one’s own. Everything has a cause and effect and predicting what actions will result in which outcomes is next to impossible. However, with the right experts who understand the workings of the industry, having positive results in this field is much more possible. Thanks to out top tier lifesci advisors and capital raising, we can help you and your company to determine whether capital raising is the right option for you.
Want to learn more about capital raising, it’s effects, and whether or not it is a beneficial decision for your company? We don’t blame you. Making the right investment choices is paramount to any company’s success. Fortunately, you’re not alone – our lifesci advisors want to see you succeed. This is why we use our team of experts, experience, knowledge, and tools to help you make the decisions that are best for your unique situation.
We take every aspect into account and help talk you through all your options. We ensure that you are fully aware of every tool at your disposal and educate you on the benefits and disadvantages of each choice that you have. With our expert team of advisors, we can help you make the right choice for your business and help you to come out on top.
Sound like what you are looking for? Of course. Your success is our success, which is why our lifesci advisors always go the extra mile to give your company the outcome you deserve. Request a consultation today to get started!