What should I look for in the IPO prospectus?
Initial public offer (IPO) Prospect is a report prepared by companies when trying to get capital from investors to sell shares to the public. The IPO prospectus describes in detail the reasons for IPO how the company plans to use the acquired capital and risk factors involved in business. The careful evaluation of the IPO prospectus can help a potential investor to avoid a company looking for money to save itself from a difficult financial situation or to allow some shareholders to sell their ownership in the company. It contains many details about the company and its business environment and considers many possible risks. The potential investor should focus on learning about the company's recent performance and the IPO reasons.
In general, the investor should look for a company that is a "problem", ie an entity that is profitable and grows with well -managed operations, no excessive support and without recent major problems. In the section of the IPO called "Summary Consolided Financial Data"The company's latest financial results will be listed; In the part entitled "Discussion and Analysis of Management", managers of the company provide the balance sheet analysis. Revenue for a normal year, which is less than the previous year or a profitable range for the current year, which is lower than in the previous year, may be a warning signal, unless these problems are reasonably explained by the management analysis. If an accounting company expresses any reservations about the company's financial procedures or its ability to stay in business in a "report of independent auditors", it is also the main warning mark.
In the section entitled "Using Revenue", the Company's statement will be read on how the capital is intended to use the IPO. If capital is used to repay debts or to purchase shares from earlier investors, this may indicate that the company has problems with maintaining cash flows or that earlier investors are unpleasantly maintaining their investment in the company. A more positive option would be intended to usecapital to extend or upgrade the device for expected growth. If the company wants to modernize processing devices or computer systems, it is also the use of capital that could be described in detail in the IPO prospectus.
Another consideration of the IPO prospectus is the environment in which the company operates. If only one product with a limited potential market produces its final success. Companies relying on only one or several main customers can also have serious problems if these customers take their business elsewhere. Potential regulatory changes or awaiting litigation may also have an impact on future growth. All these potential problems should be determined in the section called "Risk Factors".
The person who reviews the IPO prospectus should perform sufficient study and investigation to meet the company and its operating environment. Other analyzes provided by investment banks and subscribers may potentialThe investor of help, because these analyzes are prepared by financial experts dealing with the evaluation of financial health of companies. If the investor is still concerned about the answers to the answers of direct concerns to the company or the investment bank representing IPO.