When a company sells stocks or bonds, which are also known as "securities," that business incurs certain expenses. These expenses, which are termed "flotation costs," are any amounts of money required to sell the new security. Examples of costs associated with selling a security include government fees, registration expenses, and underwriters' and attorneys' fees. These costs are usually tacked on as a percentage of the cost of the security so that selling the security will be profitable to the company.
- Skill level:
Record any fees associated with registering the security that is being sold.
Calculate all fees incurred from the services of professionals, such as investment bankers, underwriters and attorneys.
Record any state or federal expenses associated with selling the security.
Add the totals from Steps 1 through 3 to determine the total flotation cost.
Report the flotation costs in terms of percentage if necessary. For instance, if the price of a security is £6,500 and the flotation costs are £325, the flotation costs would account for 5 per cent of the price of the security (500 / 10,000 = 0.05; 0.05 x 10 = 5 or 5 per cent).
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