How Much Revenue Do You Need to Go Public?

Becoming a publicly traded company, through an Initial Public Offering (IPO), transitions a business from private ownership to having its shares available for public purchase. This process allows companies to raise substantial capital and gain increased visibility. The journey to going public involves meeting stringent requirements set by stock exchanges and regulatory bodies, encompassing various financial metrics and reporting standards.

Revenue Thresholds for Major Exchanges

The amount of revenue a company needs to go public varies significantly depending on the stock exchange it targets. The two primary U.S. exchanges, the New York Stock Exchange (NYSE) and Nasdaq, each have distinct quantitative requirements, including specific revenue thresholds. Meeting these minimums is a prerequisite, though it does not guarantee a listing.

The NYSE offers several listing standards, some tied to revenue. For instance, a company might qualify under an earnings test requiring aggregate pre-tax earnings of at least $10 million over the last three fiscal years, with $2 million in each of the two most recent years, and positive income in all three years. Alternatively, a revenue-based path could involve a global market capitalization of at least $750 million and revenues of at least $75 million in the most recent fiscal year. Another standard requires a global market capitalization of at least $500 million, revenues of $100 million over the most recent 12-month period, and $100 million in aggregate cash flow over the last three fiscal years, with at least $25 million in each of the last two years.

Nasdaq, often favored by technology and growth companies, operates three distinct tiers: the Nasdaq Global Select Market, the Nasdaq Global Market, and the Nasdaq Capital Market, each with its own financial criteria. For the Nasdaq Global Select Market, considered the most stringent tier, a company could meet an earnings standard requiring aggregate pre-tax earnings of at least $11 million over the prior three fiscal years, with no single year having a net loss and at least $2.2 million in each of the two most recent fiscal years. A capitalization with revenue standard for this tier might require an average market capitalization of at least $850 million over the prior 12 months and revenues of at least $90 million in the previous fiscal year.

For the Nasdaq Global Market, one financial standard requires annual pre-tax income of at least $1 million in the most recently completed fiscal year or in two of the three most recently completed fiscal years, along with stockholders’ equity of at least $15 million. Companies might also qualify based on total assets and total revenue, needing at least $75 million in both for the most recently completed fiscal year or in two of the three most recently completed fiscal years. The Nasdaq Capital Market, designed for smaller companies, has criteria such as requiring net tangible assets in excess of $2 million if in continuous operation for at least three years, or average annual revenues of at least $6 million for the last three years. This market also has a standard based on net income from continuing operations of $500,000 in the most recently completed fiscal year or in two of the three most recently completed fiscal years.

Additional Financial Requirements

While revenue is a significant factor, exchanges consider a broader range of financial metrics when evaluating a company for a public listing. These additional requirements ensure a company possesses a sound financial structure beyond just its sales figures. Exchanges seek companies demonstrating stability and growth potential, protecting investor interests.

Profitability requirements are frequently included in listing standards, often alongside or in place of revenue tests. Both NYSE and Nasdaq offer various pathways that specify minimum pre-tax income or net income thresholds over a certain period. These income requirements ensure that a company is not only generating sales but is also capable of converting those sales into earnings. Profitability demonstrates a company’s operational efficiency and its ability to manage costs effectively.

Market capitalization is another financial requirement, especially for companies with growth potential that may not yet meet high revenue or profitability thresholds. Market capitalization refers to the total value of a company’s outstanding shares. For example, the NYSE has a global market capitalization test requiring at least $200 million. Nasdaq also has market capitalization requirements that vary by tier, such as an average market capitalization of at least $550 million over the prior 12 months for certain Global Select Market paths.

Requirements for assets and shareholder equity are also common, providing assurance of a company’s financial foundation. Shareholder equity represents the owners’ stake in the company, while total assets indicate the resources controlled by the business. For example, the Nasdaq Global Select Market has an ‘Assets with Equity Standard’ that requires total assets of at least $80 million and stockholders’ equity of at least $55 million. These metrics help exchanges assess a company’s solvency and financial health.

Audited Financial Statement Requirements

Going public requires providing a comprehensive financial history through audited financial statements. The U.S. Securities and Exchange Commission (SEC) and the stock exchanges mandate these statements to ensure transparency and reliability for potential investors. This process establishes investor confidence in financial reporting.

Companies seeking to go public must present audited income statements, balance sheets, and cash flow statements. Typically, the SEC requires income statements and cash flow statements for the most recent three fiscal years. Balance sheets are usually required for the two most recent fiscal year-ends. For companies qualifying as “Emerging Growth Companies” (EGCs), there is often an option to provide only two years of audited financial statements in their initial IPO registration statement.

The auditing firm conducting these examinations must be independent and registered with the Public Company Accounting Oversight Board (PCAOB). The PCAOB is a non-profit corporation established by the Sarbanes-Oxley Act of 2002 to oversee the audits of public companies, ensuring the integrity of financial reporting. Their role includes setting auditing, quality control, and ethics standards that registered firms must follow. This oversight protects investors by promoting accurate, independent audit reports.

Financial statements submitted to the SEC must be prepared in accordance with Generally Accepted Accounting Principles (GAAP) for U.S. domestic companies. GAAP is a set of standardized accounting rules and procedures that ensure consistency, accuracy, and comparability in financial reporting across the United States. For foreign private issuers, financial statements may be prepared under International Financial Reporting Standards (IFRS), but they typically need to be reconciled to U.S. GAAP. Adherence to GAAP allows investors to compare financial performance across different companies more easily.

Public companies are expected to have robust internal controls over financial reporting, a requirement stemming from the Sarbanes-Oxley Act. While full compliance with Sarbanes-Oxley, including Section 404, may have phased-in deadlines for new public companies, strong internal controls are essential for reliable financial reporting and preparing audited financials. This framework helps ensure the accuracy and integrity of the financial data presented to the public.