What Is an Add-On?

Add-ons are additional shares issued by a company that has already gone public. Listed companies create more units of ownership and then sell them on to raise cash for existing operations, pay off debt, fund new projects and e🍎xpand into different markets.

Understanding an Add-On

Businesses sometimes need to raise capital to grow or protect what they already have. One way to generate extra funds is to create new shares of company stock and sell them on to investors.

澳洲幸运5官方开奖结果体彩网:Equity financing, as this process is known, can provide the necessary money to shore up the 澳洲幸运5官方开奖结果体彩网:balance sheet and pay down debt. It may also be used to expand the business, freeing up funds to acquire a competit🐲or or supplier, develop a new product line, construct extra manufacturing facilities or branch out into different countriꦑes.

The beauty of equity financing is that it enables companies to raise large sums of money without having to borrow it. Banks and bond investors might be willing to front the capital the company needs, yet both will expect to be paid back in full and charge a fee in the form of 澳洲幸运5官方开奖结果体彩网:interest payments for their troubles.

Add-ons aren’t completely flawless, though. Issuing additional shares can reduce the current stock price and change the ownership percentage of existing investors. This common problem, known as dilution, generally doesn’t sit well with 澳洲幸运5官方开奖结果体彩网:shareholders.

Criticism of an Add-On

Add-ons are often looked at with a negative slant by investors and the finance community. When the number of shares outstanding increases, eac🎀h existing stockholder ends up owning a smaller🎃, or diluted, percentage of the company.

Suddenly, each share already in circulation becomes less valuable. Company profit now must be spread among a larger number of people, reducing earnings power.

Add-ons can result in control dilution, the loss of a 澳洲幸运5官方开奖结果体彩网:controlling stake in an investment, earnings dilution, diminished 澳洲幸运5官方开奖结果体彩网:earnings per share (EPS), and value dilution, subsequent declines in the stock price. In theory, shares will decline in value by a function of the original numb🧸er of shares, current share price, amount of nಌew offering and the new issue price.

Benefits of an Add-On

News that a company plans to engage in add-on financing almost always makes investors jittery. Still, some may recognize the merits of raising capital this way if the proceeds are used effectively to boost earnings over a long time frame. Reactions to add-o🌼ns often depend on how management plans to use the money, the amount it wants to raise, the depth of the discoun♒t it offers on the new shares and its track record of delivering on its objectives.

When a company uses the capital infusion to exploit untapped markets, it can create greater profit potential going forward. But that doesn't happen overnight. It can take months or even years for an investment to materialize into 澳洲幸运5官方开奖结果体彩网:bottom line gains.

Many investors believe this will happen with Tesla Inc. (TSLA). The electric car maker continually taps the financial markets to finance new projects. In the past few years, it has raised millions to billions of dollars in multiple series of offerings. The funding is aimed to expand production and cover ongoing 澳洲幸运5官方开奖结果体彩网:operating expenses such as payroll and rent.