Lesson 39 - Advanced Accounting Course

Lesson 39: IPO Accounting and Valuation Techniques

💡 What Is an IPO?

An IPO (Initial Public Offering) is when a private company offers its shares to the public for the first time by listing on a stock exchange (like the NYSE or NASDAQ).

🏦 The company becomes publicly traded, raises money from investors, and must follow strict accounting and disclosure rules.

🏁 Why Do Companies Go Public?

📊 IPO Process in 4 Simple Steps 

🧾 IPO Accounting: What You Need to Know

📘 Pre-IPO Adjustments

Before going public, companies often:

• 🧼 Clean up their financial statements
  
  

• 🔄 Change from private GAAP to public GAAP or IFRS
  
  

• 💼 Recognize stock-based compensation
  
  

• 🧾 Record deferred tax assets or liabilities
  
  

📥 Proceeds from IPO

When shares are sold, the money goes into the company’s bank account as:

If shares are sold above par value, the extra is recorded as:

📘 Share Premium / Additional Paid-In Capital (APIC)

🧠 IPO Accounting Entry Example:

Company issues 1M shares at $10 each.
Par value = $1.

🔎 Valuation Techniques for IPO

Before pricing shares, companies and underwriters must value the business.

Here are the most common methods:

🧮 DCF Summary Formula: 

Where:

• 💰 Cash Flow = Expected future profits
  
  

• 📉 r = Discount rate (WACC)
  
  

• 📅 t = Time in years
  
  

• 🏁 Terminal Value = Value beyond forecast period
  
  

📘 IPO Challenges and Considerations

📘 Recap