InvestorQ : Before investing in IPO, what should I look for in the prospectus?
Nikita Damle made post

Before investing in IPO, what should I look for in the prospectus?

Answer
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Niti Shenoi answered.
2 years ago


Most IPOs are from new companies so you don’t have much of a track record to fall back upon. You have to rely on the prospectus to get as much information as possible. Make the best of the prospectus and the information given therein. Read the prospectus in detail. A few important things you should focus on the prospectus are as under. Firstly, ask if the IPO is likely to substantially dilute the EPS of the company as that is not a very good indicator for the future earnings potential of the company? What are the financial projections and are they too aggressive? Be cautious where there is too much of aggression in the numbers without facts and a business model to back them up. Thirdly, check usage of funds of the IPO; Capital assets, loan repayment or working capital. Investment in core business is understandable but IPOs for working capital and acquiring real estate are not great ideas. Lastly, focus on IPOs where the promoters have track record of strategy and delivery. Ideas are one side of the story. The bigger challenge is to have promoters with good execution skills.