1 The Calendar

2 Build Relationships with the Syndicate Firms

3 IPOs to Avoid

4 Why Do Companies Go Public? better approach—at least for long-term investors—is to wait a qua

5 Reasons Not to Go Public

Investigate Underwriters for Better IPO's

6 Information to Get Your Feet Wet
7 In-Depth IPO Information- IPOPlaybook.com

8 Prospectus Summary
9 Risk Factors
10 Balance sheet
11 Balance sheet overview
12 Income Statement
13 Statement of Cashflow

14 Risk Factors
15 IPO Investment
Strategies

16

17

18
 1 2

track the calendar for upcoming IPO's

Underwriters-DRHP-Broker
Spam- Marketed IPO's Unsolicted Mails- Promotions- Pumping &
Dumping Stocks
A
tter approach—atPrestige,
least forGetting
long-term
Rich,investors—is to wait
Cash Infusion, Lowera quarter or two Raise more Capital, Stocks as a
Cost of Capital,
currency, More liquidity among investors

Expences, Managerial Distraction, Short term focus, Loss of Control, Loss of Privacy, Stock
Restriction, Shareholder Litigatiion,
Investigate Underwriters for Better IPO's
The Wall Street Journal Reuters, Bloomberg and the Deal Pipeline ( www.
IPOBoutique.com IPODesktop.com

Core Focus Interesting Growth Metrics

Historical Costs Accrual Accounting

Assets Cash and Cash Equivalents - Typical IPOs have
under $100M, The more it is Good for Investor
The Liabilities Keep in mind that a portion of long-term liabilities will turn
into current
liabilities each year. is could be a dangerous sign.
Interestingly, though, it could be a reason for a company to
go public: to raise
enough cash to pay down its debt.

Sales - See in %s Revenue Recognition

Cash Flows from Operating Activities- Net Cash Flows from Investing Activities (increases in
Icome (There is an increase for depreciation capex can actually
and amortization because these are noncash be a positive sign that the future is bright for the
charges), company.)

Accounts Recievable (If there is an increase, this

reduces
the cash. Th e reason is that customers have yet
to make a payment. Investors
will see if there is a trend of higher accounts
receivable, which may be a sign
that the company is too aggressive with its
selling eff orts.

Inventory (If it is increasing, then

it is a drain on cash. Again, this could be a sign
that the company is having
trouble selling its products.)

Inexperienced Management Team Need for More Financing

CEO Dependence Reliance on the Government
Neighborhood Investing Invest in What You Know
 3 4

IPO Playbook
IPOCentral.com IPOMonitor.com

Business Model Market Size and Growth

Marketable Securities - Company Accounts Receivable -

investment
Analyzing Debt - Quick ratio = ( Current assets - Inventory ) /
Current ratio = Current assets / Current Current liabilities
liabilities If the quick ratio is 1:1 or higher, it should be
Look for a current ratio of relatively safe
2:1 or higher

Cost of Sales Gross Profit- Gross profit

margin = Gross profit / Sales
Investors want to see this increase steadily
over time. It may not necessarily
make big jumps, though. Instead, its increase
will usually be in terms of
basis points. Th at is, each 1 percent equals 100
basis points.
For instance, a 10 basis points increase in the
gross margins may be a big
improvement and get investors excited. It is a
sign that a company ’s business
model has leverage and economies of scale.
Cash Flows from Financing Activities (Th is
shows the cash fl ows from issuing or buying
back stock or debt. Th is is
usually a positive number for pre-IPO
companies because they tend to raise
lots of capital.)
Legal Proceedings
Unproven Business Model
Focus on Operating Cash Flows Operating
cash flow margin = Operating cash flows/Sales
If you see this increasing over time, it
shows that a company is leveraging
its platform, such as with economies of scale
and pricing power
Then there is the quality of earnings ratio:
Quality of earnings ratio = Operating cash fl
ows/Net income
This is widely followed because it shows
possible manipulation—that
is, if the ratio is 0.50 or lower. Th is means that
the net income is much
higher than the operating cash fl ows. Th is is a
red fl ag because they should be
roughly the same. In other words, could the
higher amount for net income
be the result of manipulation?
Then there is cash fl ow effi ciency. It is as
follows:
Cash flow efficiency = ( Current assets - Cash
and marketable
securities ) / ( Current liabilities
- Short-term debt )
Be careful if cash fl ow effi ciency is below 1.0.
For the most part, this
would indicate that a company has been
putting its cash into accounts receivable
and inventory. Th us, the cash management is
poor, and as a result there
may be a need to seek out even more capital
from investors.
Market and Customer Base
Limited History of Profi table Operations
Study Mutual Fund Holdings Analyst Coverage
 5 6

Place of Incorporation

Allowance for Doubtful Inventory - 1. Raw Material 2. Work

Accounts- lowering cause in progress 3. Finished Goods
problem Inventory turnover
ratio = Cost of goods sold/Average
inventory Compare this
company ’s metric against those of
others in the industry
and also track the trends. If it is
falling at a steady rate, that should
result in
stronger profi ts and cash fl ows.
Debt-to-equity ratio =
Total debt / Total equity
If this ratio is 70 percent
or higher, then the
company may have issues
with paying its bills at
some point
Actually, to get a better sense of
this, you
can also look at the times interest
earned ratio:
Times interest earned ratio =
Earnings before interest and taxes
( EBIT ) / Interest expense
Th ink of EBIT as a form of cash fl
ow. So by comparing it to the
annual
interest expense, you will see
whether a company has a good
amount of margin
to pay its obligations. A good level is
6 or 7.

Selling, General, and Charges

Administrative Expenses
But for a
growth company, it is okay
to have some increases in
SG&A, as
these are really
investments in a company
’s future. However, some
companies
may reduce SG&A to artifi
cially increase their profi ts
to attract IPO investors.
Th is is often a sign that
management is more
concerned about playing
accounting games.
Free Cash Flow Factoring
+ve is good Factoring is a common practice in
corporate America. It is when a
company
sells its accounts receivable. While it
means getting cash more quickly, it
can
be costly. A company usually must
pay a high fee for this.
An increase in these types of
transactions should alert investors.
It could
be a sign that a company is having
cash problems

Going Concern Competition

Small Market Potential Cyclical Businesses
Buy on the Opening or Wait for the
Lockup to Expire? To
spot a hot IPO, look for the
following three factors:
1. Several days before the IPO, the
underwriter increases the price
range
and the number of shares for the off
ering.
2. Brokers indicate that there are no
more shares available.
3. You ’ve seen and heard a good
deal of buzz in the press about the
IPO.
 7

Taxes -
Finally, you can take a look at a company ’s working capital:
Working capital = Current assets - Current liabilities
For the most part, you want to see a positive number. Th is means that the
company can pay off its bills and not need to rely on more fi nancing.
Be especially wary if a company has a history of negative working capital.
Th is indicates the business model may be fl awed or that management is not
effi cient with its resources—or both.

Earnings
Earnings per share = Net income/Shares outstanding
P/E = Stock price / EPS
It ’s a simple metric but is widely followed. It is an easy way to get a sense
of a company ’s valuation.
So, if the P/E ratio is 25 or higher, the valuation will look fairly expensive.
PEG = P/E
ratio / Growth rate
Investors want these to be consistent. For example, if a P/E is 50 and the
earnings growth rate is also 50, then the valuation would not be considered
overvalued. If anything, it may be cheap. Keep in mind that growth
companies tend to trade at a premium valuation. Th e reason is that it is not
easy to find these opportunities.
But if the P/E is 50 but the growth rate is 25, then this could be a big
problem. Unless the company ramps up its growth rate—which is never easy
—the stock price could be vulnerable.
Footnotes
One type of footnote will cover accounting principles, such as for
recognizing revenues or expenses. Look to see if these have changed over
time or if they are diff erent from similar companies. Adjustments in time
periods can be major red fl ags, especially for depreciation.
Another type of
footnote will provide more detail about an item in the financials. For
example, it can disclose the features of a debt, such as the interest rate and
maturity. Th ere will also be disclosures about leases, which can be serious
obligations.

Dual-Share Structure
 8 9

Prepaid Expenses Property and Equipment

Equity- If you see spikes in areas like
Preferred inventory or accounts receivable,
stockholders’ equity + you should be alerted. It is also
Common stockholders’ equity + important to
Retained earnings. + get a sense of the changes in a
company ’s debt. Increasing debt
could portend
problems for the stock.

Pro Forma Earnings Taxes

If a company
has been reducing this account,
this could be an indication that it
does not
expect to report profi ts in the
future. After all, there will be no
taxes due if
there are no profi ts, right?
So, when analyzing the fi nancials, it is a good idea to look for the following
red fl ags:
• Sales are growing much faster than profi ts, say by 25 percent or more.
• Th ere is an expected drop in free cash fl ow. It is defi nitely worrisome if
free cash fl ow goes negative and yet a company is still reporting
positive earnings. Th is disconnect could mean that a company is engaging
in manipulation of its books.
• Be wary if a company engages in many acquisitions. It can be a way to exaggerate
profi ts. Besides, it is never easy to buy quality companies at attractive prices
as well as to integrate them. Some of corporate America ’s biggest implosions
were from companies that were too aggressive with acquisitions, such as Tyco
International. From 1999 to 2002, Tyco purchased over 700 companies.
• Avoid companies with aggressive accounting methods like bill and hold.
• Accounts receivable are growing much faster than sales, such as by 25 percent
or more. It could mean that management is stuffi ng the channel.
• Operating cash fl ows are mostly below net income, such as by half or more.
• Inventory is growing faster than sales, perhaps by 20 percent or more. Granted,
it could be that a company is gearing up for a boost in sales, such as before
the Christmas season. But it could also mean that it is having trouble selling
its goods.
• A company unexpectedly drops its allowance for doubtful accounts. It may
be a way to artifi cially increase sales. A notorious example is New Century.
In 2006, the company lowered its loss estimates on its mortgage portfolio,
even though the real estate industry was imploding. Th e company would
soon go bust.
 10 11 12 13 14 15

Restricted Cash Goodwill

Common-Size Financials Gross Margin =
(Revenue - Cost of sales)/Revenue
the following

t or more.
worrisome if
ng
is engaging

e a way to exaggerate
ttractive prices
gest implosions
ns, such as Tyco
mpanies.
ill and hold.
h as by 25 percent
nel.
by half or more.
t or more. Granted,
ch as before
rouble selling

counts. It may
New Century.
ge portfolio,
pany would
16
 Understand Bussiness Promotors Holding
Product, Manufacturing, Design Pre offer & Post Offer
Production Revenue breakup for previous year
Where, how much , place
Speciality
Acquisition
Financials Valuation Indusry Analysis
Revenues all years and why up & down P/B Indian Dosmestic market size
Profit Indusrty P/B
Debt P/E
Compare debt and net worth Indusrty P/E
Debt to equity
Competitor Analysis SWOT
Peers Revenue
peers RONW
Figures in Mn Historical
2017 2018 2019 2020 2021
Sales 5,904.48 7,425.41 8,507.94
Growth rate% 20% 13%

Cost of Sales/consumed 1,978.41 2,476.25 2,921.99

Gross Profit 3,926.07 4,949.16 5,585.95
GP margins%

Other operating Expenses 1,265.51 1,775.49 1,930.48

Depreciation & Amortization 702.7 895.36 1,340

Amortization
Depreciation

Operating profits (EBIT)

Operating profit margins(%)

Interest expenses

Tax rates
PBT
Tax expences
 Projected
2022 2023 2024 2025