As the market players are aware, the prospectus happens to be the most important document related to the company when one needs to know about the company in detail at the time of IPO (or initial public offer). Therefore, before subscribing to the IPO, it is advisable to go through the prospectus in detail as it states all the necessary information about the company and about the issue. Moving forward, we would be understanding why it is important to read the prospectus thoroughly.
The investor needs to thoroughly understand the nature of the business and what the long-term objectives of that particular company. It is very important to note that whether or not the company’s objectives are reasonable as well as sustainable. Moreover, the investors need to track whether or not these objectives are attainable in the presence of macro-economic risks which are there in the broader business environment. Some of the informed players expect that the company’s long-term objectives should be such that they benefit from the government policies. The investors should also understand the company’s business model and how it would be generating the revenues. It is important for the investors to know that the prospectus is needed in the primary market i.e. when the company plans to raise the money first time with the help of initial public offering.
Additionally, in the prospectus, the company also mentions the avenues towards which it would be investing the funds which it plans to raise with the help of IPO. This is also very important for the investors to know where their funds would be invested and whether or not it is feasible to invest in that particular avenue. The knowledge of the areas where the funds would be invested is of utmost importance this can give the broad picture of the company to the investors.
The prospectus also contains the risks which would be there if an investor makes an investment. Therefore, the players should also understand the risks which are there in the investment and whether those risks fall in their risk appetite or not. Hence, it is very important for the investors to read the risks in detail and especially the company specific risks. Generally, the company-specific risks can be mitigated by that particular company if they adopt appropriate strategies. However, even though there are company-specific risks, there are some other risks also which are beyond the control of the company. The investors should carefully understand and read those risks as well.
Moreover, the prospectus also contains the company’s strategy and the investors should also go through the strategy in detail. It would provide the investor with a deep understanding of what the company plans to do and whether or not those strategies would help the company in mitigating the company-specific risks. From the Australian perspective, ASIC or Australian Securities and Investments Commission would also be evaluating the prospectus so that it can be assured that the prospectus does not contain false information. The evaluation process has to be done within the time span of 7 days.
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