IPO Prospectus is also known as an offer document.
Capital Markets or ideally Primary markets help a company raise capital (for a stake in their company) or obtain money (in exchange for interest payments and principal repayment) from investors for the first time. An offer document, as the name suggests, is a document devised by the company for the various classes of investors when they are raising capital from the Primary Markets. An offer document includes a vast amount of information. An offer document includes things such as:
- Risk Factors in the Issue
- Investment bankers to the Issue
- Registrars to the Issue
- Issue Open and Close Date
- Pricing of Issue
- Opportunities in investing in the Issue.
- Company Strengths
- Company Strategies
- Objectives of the Raised Capital.
- Information on Company Management (Remuneration and DIN)
- Equity Capital and Share Issuance History of Company.
- Balance sheet for the last 3 -5 Years.
- Profit and Loss Statement for the last 3-5 years.
- Cash Flow Statement for the last 3-5 Years.
- Company Financial Ratios such as Return on Net Worth, Price to Earnings, Price to Book Value, etc..
- Peer Comparison.
- The Importance of Offer Document is that it helps an investor to get the complete picture of a company going for capital raising. This is important because:
- It helps investors to make an informed decision of investing or not in the Issue.
- It helps investors to save time as the investor does not have to consume a lot of time researching the quantitative and qualitative factors of the company.
- An Offer Document is first reviewed and audited by independent auditors appointed by the company, and then the offer document is submitted to the Market Regulator: Securities and Exchange Board of India. Only after SEBI reviews and approves it, the company is allowed to raise capital in the Market. Hence an offer document has enormous importance since SEBI will vet it line by line. This is to check for fraudulence and also to instill investor confidence.
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