What is public float?
Hi doston! Angel One ke is podcast mein aapka swagat hai.
Doston kal main apne college ke friend Ravi ke saath video call kar rahi thi. We thought ki it's been a long time since we met, aur abhi in person milne ka toh koi chance hi nahi hai - toh video call par hi catch up kar lete hain. Ravi is one of my oldest friends from college, aur uske saath main aur mere baaki ke dost din bhar stock market ke baare mein discuss karte rehte the. In fact, Ravi was also a mathematical prodigy. Isliye, uske stock analyses sunne mein aur question karne mein ek alag hi type ka pleasure tha, jo college ke classrom me nahi mil paata tha. On our call, our friend Shankar also joined. Lockdown aur travel ki baat karte karte hum savings discuss karne lage, aur Shankar ko ek bada peculiar sa question dimaag me aaya. Usne Ravi se poocha, ki kya sabhi shares jo exist karte hain, woh publicly trade hote hain? Do they all exist on exchanges?
Ravi was confused. Usne poocha ki what difference does it make? Tab Shankar ne clarify kiya. Woh jaanna chahta tha, ki kya investors kisi company ke sabhi shares kisi bhi time par buy ya sell kar sakte hain. Then Ravi ne usko is topic par ek primer diya. Spoiler alert: in shares ko public float bolte hain.
Toh doston, kya aap bhi jaanna chahte ho ki Ravi ne Shankar ko public float ke baare mein kya bataya? I bet you are curious. Toh chaliye dekhte hain. Let me start by remembering our conversation from the very beginning!
Ravi ne public float ke concept ko float se explain kiya. Imagine ki ek talaab me there are lots of floating tyres. Lets say ki ye floating tyres hain kisi company ke shares. Ab imagine karo ki all the people who are on boats are investors. Ab agar aapko is company ke stocks khareedne hain, toh you will have to pay a certain sum of money to some person on a boat who owns these shares. Suppose ki aapne in shares ko successfully khareed liya. Did you notice ki is process mein kya hua? Essentially, kuch set amount of shares ki ownership float karke aapke paas aa gayi. Similarly, other people can also buy and sell other shares of the company. This scene explains the concept of public float very well.
In the most basic words, public float kisi company ke woh shares hote hain, jinko public freely trade kar sakti hai, at any time, at their own will. Ab isme se kuch tarah ke shares automatically exclude ho jaate hain - for example, government owned shares, locked-in shares, shares owned by a company’s employees, which cannot be sold for a set period of time, and so on. Basically, agar koi share ko kisi policy ya fir significant charges ke kaaran market mein freely sell nahi kiya jaa sakta, toh they are not included in the public float.
Theek hai na? Did you understand it? I did too, and so did Shankar. But here is what is more interesting about public floats. Public floats can pose both advantages and disadvantages to a company. Let’s check them out.
Doston advantages ke terms mein, public float kisi company ko ek big operating capital ka access deta hai - by allowing external stakeholders to invest in their company. Saath hi, is paise se companies debt repayments karke apna debt ratio reduce kar sakti hain. And lastly, public float par operate karne se companies ki trustworthiness badhti hai, aur media mein zyada attention milta hai.
So what’s not cool about any of this? The following three things.
Number 1 - public float se company market fluctuations se expose hoti hai. In other words, agar markets are very bearish, toh the company might face a shortage of operating capital. This can lead to an instability in the company’s finances during difficult times.
Number 2 - Company ke shares mein investors ka interest retain karne ke liye companies need to perform well. Lekin this puts performance pressure on companies. Is pressure ke chalte kai companies toh false earnings aur performance reports bhi issue kar chuki hain, and were heavily fined in the aftermath. False earnings aur performance reports issue karke kuch companies ne investor interest generate karne ki koshish ki - lekin this has always worked against the companies’ favour. Is tarah ke reputation damage se ubhar kar aana is usually not possible for such companies. Invest karte samay it is advisable to stay away from such companies.
Number three - Lastly, public float reduce hone se stocks ki liquidity ghat jaati hai - it means that agar aapko stocks khareedne hain, toh you might not be able to buy them easily!
Investors companies ka valuation karte samay public float ka istemal karna prefer karte hain - because it is more likely to give an accurate estimate of a company’s real-time valuation.
Isn’t this an interesting concept? We have more podcasts on other such cool concepts - and I recommend you to check them out!
Aur agar aapko aur free learning material chahiye, toh don’t forget to visit www.angelone.in, and keep the learning going!
Until then, goodbye from angel broking, and happy investing!
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