5 Step Checklist Before Applying For An IPO

Know The Objective Of The IPO

There are different reasons for a firm to do an IPO, but the most essential reasons are internal and external development. If the prime objective of the offering is to grow and expand their business further, it is a positive for the offering. Other reasons could include paying for the existing debt of the company, providing an exit to the early investors, etc.

After an IPO, the company's capital base is widened, which reduces its reliance on debt funding and enhances its flexibility. If the funding is done on an equity basis, entrepreneurial choices may be executed immediately. On the other hand, on a debt capital basis, there is less flexibility because they often lengthy decisions of a bank to approve a loan are typically an impediment.

Know The Financials Of The Company

The first question you should ask is if the company is profitable or not. When do the promoters anticipate the firm to become profitable if it is currently losing money? How did the pricing for the offering fare? It is critical to review the company's financials. Cash flows, revenue growth, balance sheet health, margins, working capital, and other related financial indicators should be studied during the previous 3-5 years, according to experts. To assess if there has been considerable growth, look at the numbers from the last few quarters or the prior year, just before the IPO.

Understanding The Business And Associated Risks

Look out for what is the company's business model and how it is performing. When you read that prospectus, you'd know what the company does, how the outlook of that business looks in the long run, and what are some of the risks associated with the business. All significant risk factors and unfavorable aspects of the business must be included in the prospectus checklist. Reading the risk factors is essential for determining whether the organization has any big worries or risks. Certain liabilities and litigations can sometimes put the company's future business prospects in jeopardy.

Check The Company Management And Background

As an investor, you should first look at who is in charge of the company. Promoters and senior management are a company's most valuable assets as they are the decision-makers. As a result, learning about their backgrounds is critical to making an IPO investment decision. The average number of years spent in the firm by senior management might reveal information about the organization's working culture. Check whether the company management had faced any legal or management-level issues. It's important to do good research on who runs the business. You can look at things like time spent with the company, past performance, etc. History of the comapany's management matters!

Peer Comparison

If you have made your investment decision in the particular IPO, it would be good for your investment to know about the company's competition in the market. Having an idea of the peer would make your investment decision more strong and clear. Compare the company's financials, past growth, and future prospects, etc, with that of its peers. Also, check the valuation of the offering compared to its peers. Check all the essential points that shall make your decision of investing in the IPO save.

Bottom Line

If you're thinking about getting into the main market by investing in an impending IPO, check out these 5 IPO and investment checklists before putting your money down for a subscription. Being an investor is good, but having a clear idea about your company's history and operations would make your investment further good investment. All the investments in the stock and mutual funds are subject to market risk. Read all the documents and research before making an investment decision.