Aspects you need to look at before investing in IPOs

Every company that offers an IPO has to publish a valid prospectus, which has details about the firm — its business, financials and promoter holdings, among other things.

Every company that offers an IPO has to publish a valid prospectus, which has details about the firm — its business, financials and promoter holdings, among other things.

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Promoter background: Go through the details of who owns the company and its shareholding pattern. It will give you an insight into how the company is run.

Financials: There are three main statements — balance sheets that show assets and liabilities and the overall financial position of the company; profit and loss account that show how much revenue and profits a company is able to make in a year; and the cash flow statement that shows how effectively the company is utilising cash it’s generating from business (or whether it is generating any cash or not).

Industry growth: It is important to know what kind of competition the company’s products face and its market position.

Risk factors: These will give you an idea of potential downsides. It also lists out court cases pending against key personnel and the firm.

Valuations: This is extremely important in determining the success of an IPO. It matters what price you have to pay to own a part of the IPO.

— Lisa Pallavi Barbora