IPO

IPO (Initial Public Offering)

When an organization issues its common shares or stocks to the general public for the primary time, it’s called an IPO or initial public offering. These IPOs are issued by limited companies so that they’ll be listed on the securities market. After being listed on the exchange, the company’s shares are going to be ready to be bought within the securities market.

It is very important to analyze any company before investing in an Initial public offering, so let us tell you what things should be kept in mind before investing in an IPO of a company.

1. Promoter’s and management team background

The investor should first see who the promoters of the company are because promoters and top management have the largest assets of the company. Therefore it is very important to get information about them. You will get to know the working culture of the company by how much experience the promoters have in the business they do and how much percentage they hold in their company.

2. Strength of the Company

Before investing in an IPO of a company, the investor also needs to know what is the biggest strength of the company and its position in the industry in which it works. The area in which the company is working, is it able to give competition to other companies? The more you read about the position and business model of a company, the more you will know about the future of that company.

3. Financial Summary and Comparative Valuation

Analysts say that just as a company should keep an eye on its past 3 to 5 years of revenue growth, margins, balance sheet strength, working capital, cash flow, and other financial parameters before investing in stocks, just like any other It is also important to know the financial condition of the company before investing in the IPO as well as to see whether there has been a lot of growth during the last few quarters or one year before the IPOs.

4. Motive of issue and promoters shareholding after IPO

It is important to see the shareholding of the promoters before and after the IPO of a company. Promoters’ greater stake in any company is always better for minority shareholders. It is also very important to see how much offer for sale and how much fresh issue will be made in the money coming from the IPO.

5. It is very important to check the valuation

Valuation refers to the relative price. That is, there is no difference in its historical and current financial position compared to the price at which the IPO is being offered. Sometimes the price offered in an IPO can be more or less. It depends on the parameters and profitability ratio of the industry. To check the valuation of a company, the price is a huge contribution to the earnings ratio. When a company’s IPO is presented below 25 P/E ratio, it is considered an IPO of very good value.

Take support of research notes and anchor allocation

If you have not checked the above suggested points properly then you can look at the opinion of various brokerages about the IPO. It is publicly available. If you do not understand the language (note) of one brokerage firm, then look at the language (note) of other firms. Many times private equity, mutual funds, banks and institutions are the first investors in anchor investor IPOs. They have a better understanding of the company’s business, business model and future.

Big risk factor

Companies have to disclose all the major risks and negatives related to their business. It is important for the investor to read it so that he can know about the big risks and negatives associated with the company. Many times, the company has a lot of liabilities and corporate legal issues, which can affect the company’s prospects in the future.

Note

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