We Study Billionaires - The Investor’s Podcast Network cover image

TIP646: How To Understand A Business Like A Pro w/ Kyle Grieve

We Study Billionaires - The Investor’s Podcast Network

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Strategic Equity Issuance: Timing is Key

Lack of knowledge around capital allocation often leads companies to issue equity for financing, especially when they can't secure bank loans or lack strong financial health. Smaller businesses frequently find equity issuance their only growth option, as banks may be unfamiliar with them or they may not have a history of profitability. Even larger firms may rely on equity issuance, but while it can support growth, it can also diminish intrinsic value if shares are undervalued. Conversely, issuing equity when shares are overvalued can enhance intrinsic value. Effective equity issuance requires a sound understanding of a company's intrinsic value, which is often not the case in practice. Evaluating how a company plans to fund future growth is critical in assessing its viability.

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