Definition:

Proceeds From Sale of Stock refer to the funds a company receives from issuing and selling its own shares of stock. This can occur during an initial public offering (IPO) or through subsequent offerings.

Examples

1. A technology startup raises $5 million by issuing new shares to investors during its IPO.
2. A publicly traded company issues additional shares to raise $10 million for expansion projects.

Formula:

Proceeds From Sale of Stock = Number of Shares Sold x Price per Share

How to use the metric:

This metric is used to assess the amount of capital a company has raised through equity financing. It is crucial for understanding how a company funds its operations and growth without incurring debt.

Limitations:

1. Dilution of existing shareholders' equity can occur, potentially reducing the value of existing shares.
2. The market's perception of the company might be negatively affected if shares are issued at a lower price than expected.

Applies to:

Industries with high capital requirements such as technology, pharmaceuticals, and manufacturing, where companies frequently raise funds through equity to support research, development, and expansion.

Doesn't apply to:

Industries that are heavily reliant on debt financing, such as utilities and real estate, where companies often prefer debt due to stable cash flows and tax benefits associated with interest payments.

Summary:

Proceeds From Sale of Stock are a key financial metric indicating the capital raised by a company through issuing shares. While it provides necessary funds for growth and operations, it can lead to shareholder dilution and affect market perception. It is particularly relevant in capital-intensive industries but less so in sectors that favor debt financing.