Read it from back to front so say all the experts. That is if you really want to know what is going on.
To protect themselves from investors coming back and saying they were mislead public disclosure statements can be anywhere from 50 to 80 pages long. Disclose everything is the new mantra that businesses are following and some prospectuses can end up being the size of coffee table books, and few investors find the time or bother to read it all as the print seems to be getting smaller and smaller. But all the information is there or should be.
Putting together a prospectus is an industry in itself. There are competitions for the best presented book. In the hope of dazzling the would be investor, consultants, graphic artists and public relations specialists are engaged to promote and sell the initial public offering.
A great place to start reading a prosptectus is from the back. There you'll find out if those who are floating the company are good business people and managers, and if they are interested seriously in taking care of the shareholder.
In the costing section you can find how much is the cost of raising the capital. Divide the cost of the issue, by the sum amount of what they are raising and work out the percentage. What is best is a low percentage, as low as possible. Around about the 5% mark for a small company and even lower for a larger company. A few years ago during the tech boom, travel.com raised its capital with a percentage of a massive 13.8% showing disregard for the investor.
Investors should always ask what happens to the money raised, where is it going. Money staying in the company is far better than money heading off into the the current owners coffers. Past the glossy front of the prospectus towards the back is where the truth of who gets what . Fee disclosures, study these. Much enthusiasm for the product, fund or share can be attributed to the advisor and what he will receive if you buy. These fees can be in the form of direct fees, performance bonuses on top of the direct fees, or option arrangements.
The prospectus is not only an application form. The prospectus should inform you whether you think that it is a good place to place your hard earned.
Don't be over eager to invest straight away.
Understand the offer and think
Know well the forecasts and projections.
Judge the risk and decide if it suits you.
The riskier offers can:
Seem to be raising large amounts of capital for the size of the company.
Rely to heavy on raising a certain level of money to be able to carry on business projections.
Be vague about what the company will do with the raised money.
Doesn't have an underwriter to help with the shortfall or use an underwriter with little street cred., or no reputation.
Pay attention to all the fine print. The terms and conditions. If still interested read what the offer is in detail. Be aware that some securities may be harder to sell as they don't operate as normal shares. If uncertain about tricky terms and conditions ask a stockbroker to explain them to you.