The funds generated in a company’s initial public offering are called the capital base.
Equity base is a term used to describe the funds a company generates as a result of an initial public offering or initial public offering, as well as any additional offerings the company makes at a later time. The retained earnings generated by the company are often considered part of the capital base. The term can also be used to identify the initial capital used by an investor to secure a particular security or the total initial capital used to protect all assets currently contained in the investment portfolio. With either application, identifying the capital base helps provide a starting point for evaluating successful income generation over a period of time.
With companies that do public offerings, the idea is to tap into these resources to generate additional income. Therefore, knowing what type of capital base was created by these offerings is critical to determining how to grow these resources and generate profits for the business. By subtracting the capital acquired as a result of the IPO from the subsequent earnings generated by these issued shares, the company can easily identify whether the IPO actually lived up to expectations. If performance is not as expected, the company can investigate the process, determine where it failed to perform as designed, and take steps to correct the process for use with subsequent offerings.
Similarly, an individual investor is interested in how much of a real return he or she gets from buying or selling a given investment. Taking into account the amount of resources used to protect the asset, it becomes a simple task to calculate the current ROI or return on investment. The capital base also makes it possible to determine the ROE, or wealth tax, generated by each asset in the period of time that elapses between the point of purchase and the current date. Understanding the rate of return as it relates to individual holdings, as well as the cumulative value of the investment portfolio, can help investors refine their investment strategies, as the process makes it much easier to know which assets keep and which ones to sell.
Since the process of identifying the capital base is relatively simple, it can easily be used as an effective benchmark to measure the real rate of return generated over a specific period of time. While the capital base remains somewhat constant over time, it can change due to the buying and selling activity of individual investors, or additional stock offerings issued by the corporation. Adjusting the capital base to allow for these events is not difficult and will ensure that investors always have a reliable base to work from when it comes to evaluating the performance of their current investments.