InvestorQ : What should I look at in the financials of the company in prospectus?
sanjana Tulsiani made post

What should I look at in the financials of the company in prospectus?

Answer
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shrinidhi Rajan answered.
2 years ago


Success of an IPO post listing is largely dependent on the troika of Growth, Margins and Debt levels. This is largely similar to investing in the secondary markets after all it is equities that you are buying. GMD here refers to (Growth, Margins and Debt). Firstly, convince yourself that the company is in an industry that has growth potential over the next 5 years. You surely do not want to invest in an IPO that is going to stagnate. Secondly, look at the flow and stock margins. Are the net profit margins and ROE comparable with peers in the industry? Many IPOs will try to sell the eyeball story, but you need not fall for it. Focus on hard profits and profitability before committing money on the IPO. Lastly, is the company too indebted? You surely do not want solvency issues. One way to look at this is the debt / equity ratio. But that can only disclose part of the story. You actually need to check out the coverage ratios and check if conservative profit projections are able to handle debt servicing. In a nutshell, investing in an IPO is exactly like investing in the secondary market. The only handicap is that you do not have a visible stock market track record. You also do not have a track record of credible research on these stocks. The best you can do as an IPO investor is exercise caution and do your due diligence before investing.