The IPO Prospectus: How to Read the Fine Print
by John Deysher
An IPO or “initial public offering” is the first sale of stock to the public by the company or existing shareholders. This year, every conceivable type of company is coming public, which coincides with most major market indexes trading near multi-year highs during the summer, although in the past month the indexes have retreated markedly.
How does an investor sift through the rubble to get to the few gems?
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You need to start with the prospectus, a formal written document to sell shares—it is the only way a new issue may be sold. Your broker must send you one—make sure you read it!
Although these documents are written by lawyers, a prospectus is straightforward and covers most of the important areas you need to focus on. Here’s what you should look for:
This usually provides an overview of the company—what it does, strategy and strengths, management depth, deal size/terms and consolidated financial data. This section is generally several pages long and is designed to whet your appetite.
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