Hop-in-Foods Essay

722 Words Nov 10th, 2011 3 Pages
Hop-In Food Stores, Incorporated Strategy Paper There are many risks associated with both underpricing and overpricing an IPO relative to the underwriting company as well as to the company issuing the IPO. If Scott and Stringfellow were to underprice the IPO, they could easily be criticized for not obtaining the maximum possible value for Hop-In Food. This could lead to a loss of underwriting business not only from Hop-In Food, but from other corporations as well. Scott and Stringfellow could lose a good reputation and solid brand if they underprice Hop-In’s IPO, and there could be a possible increase in litigation costs from Hop-In. If Scott and Stringfellow were to overprice Hop-In’s IPO, there is a chance that the market will not …show more content…
The Speculation of the market is cautiously optimistic, so Mr. Merriman needs to consider the possible reactions that the public could have on the company and it’s operations. Everything in the S-1 statement needs to be considered: book/asset value of the stock and financial condition of the business, the earning capacity of the business, the dividend policy and payout potential, and the market price of similar public corporations’ stock. It should also be considered whether there are growing operating profits or not, revenue growth rates, growing operating cash flow, and the use of the IPO proceeds that Hop-In has planned. In order to calculate the IPO, there are four approaches that can be considered: book or asset value approach, income or earnings approach, the dividend approach, or the market approach. The book value approach subtracts total liabilities and depreciation from the historical cost of assets to yield a value of the company; this value is then divided by the number of shares being offered. However, this method doesn’t factor in the appreciation in value of assets or other intangibles, such as goodwill. The second approach is the income or earnings approach. The first step is to look at the cyclical trends in past earnings (usually about 5 years back). The next step is to capitalize

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