Dottie’s Grocery Case Study

Dottie’s Grocery Case Study Introduction Business expansion is a must for companies that have been developing well. To do this, the most important thing is that the company must have enough capital to grow. There are many ways a company can increase its capital to grow its business. The two most popular methods are issuing debt to the public or initial public offering (IPO). The article will analyze the impact of each method on the company through the case study of Dottie’s Grocery. The impact of issuing stock to the public The issuing stock to the public allows a corporation to increase its capital. This capital will be used for the corporation's business purposes such as expanding production, acquiring new companies, paying debts, etc. The most important point of this method is that the company can increase capital without increasing debt. But this method will greatly affect the management structure and financial statements of a company. First, the impact of issuing stocks will change the management structure of a company. According to the Nyse Ipo Guide. (n.d.), when a company issues stocks, the company accepts new shareholders on its board. It is people who accept to buy shares of the company and these people will own a part of the company. This means the company is no longer owned by the original founders. The management structure of a company will have to change. Based on Basu (n.d.), the management structure of a public company will consist of a board of management or board of supervisory, CEO, the shareholders. Depending on the country, a joint-stock company will have specific requirements for the board of management. But the important point is that the right to decide will be based on the shareholders involved, not the founder's monopoly. Second, when it became a joint-stock company or a public company. The company's financial reporting system must meet the transparency of shareholders, the government. Based on the Nyse Ipo Guide. (n.d.), the company must submit periodic financial statements and other reports with the SEC under the guidance of the Exchange Act. Depending on the size of the company, there will be specific reports required. Table 1: The annual reporting cycle for U.S. large accelerated filer (Nyse Ipo Guide. (n.d.), p. 70). Ensuring publicity and transparency in all activities as well as financial information of the company is a key factor when a company proceeds to issue shares. Unlike private companies, the above information belongs to the company owner. Sometimes the disclosure of action plans as well as financial information is not a good factor because competitors can rely on this information to know the status of the company. The impact of issuing debt to the public As we all know, payable bonds are a form of short-term, medium-term, or long-term debt, including a formal agreement to pay annual interest and principal on maturity. The bond issuance helps businesses gain more capital through debt. . The difference from issuing stocks is that the issuance of bonds does not affect the share of the company owners. Bonds are a business debt. Therefore, based on Allen (2019), businesses are obliged to pay the loans even if the business fails. Lenders will be given priority to repay before any equity investors in case the company goes bankrupt. For financial statements, because the bond is a liability, according to Codjia (2017), it will affect all financial statements including balance sheet, income statement, and statement of cash flow. Recommendation Based on the characteristics of two methods of capital mobilization and in the case of Dottie’s Grocery. In my opinion, the company should mobilize capital by issuing stocks for the following three reasons. Firstly, the company can increase capital and not increase debt. $ 23 million dollars is a large amount of money and is difficult to achieve through bonds. Second, when issuing stocks, the original owners of the company will receive benefits when they can convert the shares into cash. Thirdly, the company's goal is to be more developed, the IPO is the first step to make the corporate management system, the financial system of the company more transparent and more prestigious. From there, the expansion of business activities such as buying, selling, and merging in the future will be more favorable. In addition to the above factors, the most important point is that when issuing stocks, the company will have more owners. This will affect the discretion of the business owner. Seven shareholders of Dottie’s company should calculate the number of shares they hold after the IPO so they can still take core decision-making power. The narrative of the IPO process steps The typical IPO process in the USA is divided into three main stages: 1. Pre-filing period. Based on the Nyse Ipo Guide. (n.d.), this is a process of preparation and adjustment to facilitate the IPO. In detail, this process includes the following basics: - Select advisors including lawyers, underwriters, independent auditors, investment bankers to prepare procedures and documents for the IPO. - Prepare documents, financial records, financial statements for IPO. Restructuring the company if necessary to make sure the company meets SEC and stock exchange requirements. Calculate stock price and number of shares when the company issues. 2. The waiting period. Tsu et al (2019) pointed out the waiting period will begin when the IPO issuer submits the registration statement for public sale with the SEC for review. This process includes the following basics: - Prepare a marketing strategy for a successful IPO. Expected release date and prepare marketing activities. - Receiving and solving the SEC comments including amendments, supplements, adjustments to the IPO profile and company structure, finalize all other documentations. 3. The marketing/execution phase According to Nyse Ipo Guide (n.d.), this stage will begin after the roadshow when the SEC allows the IPO issuer to sell its shares to the public by making the registration statement valid. This process includes: - Launch IPO: The company will conduct presentations for brokers, investors meeting, etc. - Begins publicly trading on the NYSE. The company will open and publicly offer shares. - Aftermarket: the Nyse Ipo Guide (n.d.) pointed out depending on the performance of stock trading, the underwriters can intervene to stabilize the stock market to reduce short-term volatility. Conclusion Issuing stocks or bonds are two common methods that help companies gain capital to finance their business operations. Each plan will have specific impacts on the company. Through case study analysis, Dottie’s Grocery should use the IPO method to achieve its capital goals. Table 1: The annual reporting cycle for U.S. large accelerated filer (Nyse Ipo Guide. (n.d.), p. 70). January • Press release announcing Q4 earnings call/webcast (c. 1 week in advance). • Q4 earnings release and Form 8K. • Q4 earnings call/webcast. April • Press release announcing Q1 earnings call/webcast (c. 1 week in advance). • Q1 earnings release and Form 8K. • Q1 earnings call/webcast. • File and post/mail definitive proxy (no later than 120 days after yearend if incorporated into 10-K; at least 40 days before annual meeting if using e-proxy “notice and access”). July • Press release announcing Q2 earnings call/webcast (c. 1 week in advance). • Q2 earnings release and Form 8K. • Q2 earnings call/webcast. October • Press release announcing Q3 earnings call/webcast (c. 1 week in advance). • Q3 earnings release and Form 8K. • Q3 earnings call/webcast. February • Submit SEC no-action requests to exclude stockholder proposals from proxy (at least 80 calendar days before definitive proxy filed). • File Form 10-K (no later than 60 days after fiscal year end—i.e., by March 1 or 2). • File “glossy,” if incorporated by reference into Form 10-K, and print/post on website. May • File Q1 Form 10-Q (no later than 40 days after quarter end—i.e., by May 10). • May 31—File Form SD (if applicable). March • File preliminary proxy with SEC (unless it contains only certain specified matters) at least 10 calendar days before definitive proxy filed, but review may take up to 30 days). • March 31—Q1 quarter end. August • File Q2 Form 10-Q (no later than 40 days after quarter end—i.e., by August 9). September • September 30—Q3 quarter end. November • File Q3 Form 10-Q (no later than 40 days after quarter end—i.e., by November 9). • Notify stockholder proposal proponents of eligibility or procedural defects in proposal (within 14 days of receiving proposal). December • Deadline for stockholder proposals (120 days before date of prior year’s proxy statement). • Send directors’ and officers’ questionnaires to board members and executive officers (for proxy preparation). • December 31—year-end. June • Annual stockholders’ meeting. • June 30—Q2 quarter end.