Suppose you open up a store selling special birthday cakes that contain recorded bits of sound. Now loved ones can hear a special message from whomever as they begin to cut the cake.
After five years of business things are going well, so you decide to open another store across town. Three years later, you decide to open two more stores. It sounds like things are really going well for you. You've got a product that people are lining up buy. Congratulations.
However, you feel that this is just the beginning. You envision that people all across America, or even around the world, need to experience the personal birthday cake that only your company can deliver. You suddenly realize that at your current rate of expansion, it will be over sixty years before you can reach everyone in America. You are more than a bit depressed as you imagine making your first million dollars on your 100th birthday. (At least you'd have a cool cake!)
You are also quite worried about a rival cookie maker with a similar product who has already set up stores in New York, San Francisco, Dallas, and Minneapolis. The "birthday cookie" has the potential to steal your customers away from you before you even get there. Because the thought of a birthday cookie is so...wrong (oh, and so is the thought of you not being a millionaire), you decide to "go public".
In order to raise enough money to open up 200 stores around America and one major production factory able to supply another 300 bakeries, you decide to offer 20,000,000 shares of Sound Off Specialty Cakes (ticker: SOSC). The financial plan and current value would be considered by an investment firm who help set a price and begin an initial public offering for the share price to the public.
By going public, companies like Sound Off Specialty Cakes can raise the necessary cash needed to help their business continue to grow. The other part of this equation is that investors will only buy shares in companies in which they have confidence. The stronger the business, the more appealing the shares will be to investors.
Have you ever wondered whether a company actually makes/loses money each time their share price fluctuates? Find out now.
On its initial public offering (the first day of trading Sound Off's shares), it is not uncommon for share prices to fluctuate a lot. This usually is not because investors are unsure of how successful the company is (sales and profit statements are usually easily available) but because investors are unsure how favorably other investors will view this company.