Jul 07, 2005, 11.17 AM | Source: Moneycontrol.com

Factors to watch before investing in IPOs

If you hope to make money in public equity offers, you have to make some efforts and become an informed investor, says Prithvi Haldea of Prime Database.

Is the promoter a liability or an asset?

  • Are there any material defaults/ litigations against the company or its promoters?
  • Persons/Companies that have not been compliant with laws of the land reflect a worrisome mindset.
  • If you find too many defaults/litigations of a material nature or even one of a very serious nature, a the issue.
    – Criminal proceedings against the promoters.
  • Check out record of past defaults of companies/ individuals at www.watchoutinvestors.com .
What is the status of the issuing company?

  • Holding company
  • Main company
How has been the performance of the company?

  • Number of years in the business
  • Size of the company
  • Growth rate
  • Market share and growth
Are the financials, specially the recent ones, reliable?

  • Many resort to window dressing; high sales often lie in sundry debtors, profits could be because of a very high “other income” or “unusual income”.
  • Beware of bloated previous year’s financials; amazing how almost every company performs so exceedingly well in the year and quarter preceding the issue!
  • Look at aging of sundry debtors (and earlier write-offs).
  • Look for changes in accounting policies (depreciation etc.), in financial year.
  • Look if there are any significant Notes to the Accounts.
  • Look if there are any significant qualifications by the auditors.
What to look for in the Balance Sheet?

  • Fixed assets
  • Investments
  • Loan and advances
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