How to Size Up an IPO Prospectus
COVER PAGE
Are the Wall Street underwriters well-known? More important, are there several? IPOs tend to do better when they're sponsored by more than one firm. That creates more investor interest in the new stock.
SELECTED FINANCIAL DATA
Is there evidence of growth in revenues, profits, cash flow from operations, and shareholders' equity? The business should be clicking in at least one of these areas; if not, be wary.
MANAGEMENT'S DISCUSSION & ANALYSIS
How is the company faring? Look for explanations of any troubling signs found among the financial data. Also look for a table called ''results of operations'' detailing profit margins. Are they growing?
OWNERSHIP OF COMMON STOCK
Are the current owners bailing out? Be concerned if any insider is selling more than 10% to 15% of holdings or if, as a group, they are selling more than a third of the total shares.
RISK FACTORS
What can go wrong? Is the company dependent on one or two customers? Is the government about to regulate the industry? Focus on risks that are specific to the company.
DATA: BUSINESS WEEK
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