Analysis of Prospectus

7/31/2019 Analysis of Prospectus

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ANALYSIS OF PROSPECTUS1.0 what is a prospectus

A prospectus is a document, covering all relevant information andregulatory compliances, inviting (offering) general public to subscribefor shares or debenture of company (issuer). If we analyze the abovedefinition of prospectus, we find;

A Prospectus

i) Is an invitation to the general public for purchasingshares;

ii) includes all relevant information;

iii) Complies all required regulatory matters as per

Companies Act 1994, SecuritiesAnd Exchange Ordinance 1969, Public Issue Rules 2006,

depository Act 1999

Etc;

iv) Is issued by an issuer Company.


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2.0 Who are the related parties to the

ProspectusFollowing parties are involved with a prospectus:

Securities and Exchange Commission;

Stock exchanges; Manager to the Issue;

Underwriters;

Bankers to the Issue;

Auditors; Company (Issuer);

Public.


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3.0 What are the major contents of a

prospectus

3.1 Conditions under section 2CC of the Securities AndExchange Ordinance,1969:

Followings are the salient features of the said provision-

I. numbers of shares and value of IPO;

II. publication procedure of prospectus;

III. submission requirements of prospectus to different authoritiesincluding SEC;

IV. listing with stock exchanges;

V. agreement with CDBL;

VI. application procedure by NRB;

VII. Procedure and time frame to provide information to SEC;

VIII.consequence of under subscription;

IX. market lot;X. procedure and timing of lottery incase of over subscription


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prospectus3.2 Due diligence certificate by the issue manager:A certificate by the issue manager in respect that the prospectuscontains all the required information and complies all legalrequirements.

3.3 Due diligence certificate by underwriters :A certificate issued by the underwriters in respect that they haveapproved the prospectus and will take over unsubscribed portionof shares as per terms as specified in the prospectus.

3.4 Risk factors of the issuers business:All business and industrial ventures have certain risks. In thispart of prospectus the issuer mentions all probable risks anduncertainties of their business and the remedial measures toovercome such risks.


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prospectus

3.5 Description of business:

Nature of operation or nature of business of the issuercompany is described here.

3.6 Sponsors, Directors, management and ownership:

In prospectus a brief description and life sketch ofsponsors and directors are included. In addition to this,some information regarding management, top executivesand their remuneration are also mentioned in the

prospectus.3.7 Ownership:

Existing shareholding proposition is mentioned in theprospectus. Readers can understand that who are theowners of the issuer company before materializing the

proposed IPO.


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prospectus

3.8 Capital structure:

Through IPO the Issuer intends to raise its paid-upcapital. From this part an idea can be taken about the

pre IPO and post IPO capital structure.

Paid up capital before IPO xxxIPO xxx

Paid up capital after IPO xxx


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prospectus

3.9 Utilization of fund:

It is obvious that through IPO the issuer company raises

fund from general public. A clear understanding is given inthe prospectus about how raised fund to be utilized by the

issuer company and at the same time from where the fund

to be collected. From this part the user of the prospectus

will know NRB portion of IPO, general portion of IPOand any other fund collected (pre IPO) before publishing

the prospectus for the proposed expansion or investment

program.


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prospectus

3.10 Lock-in period:

After listing of the Company with the Stock Exchanges, theshares are eligible to be traded in the secondary market. All theIPO shareholders are at liberty to sell their shares. But a lock-inperiod is imposed on selling shares of the sponsors, directors andshareholders at the time of according consent of IPO. A clear

description in this respect is given in the prospectus.

3.11 Tangible asset per share/ Net asset value (NAV)per share.

This is one of the basic calculations of the prospectus. Itrepresents the book value per share. Total of paid up capital,retained earnings, reserves and other equity less intangible assetsand fictitious assets is divided by numbers of issued shares to findout book value per share. Alternatively, net assets excluding

intangible assets and fictitious assets is divided by numbers ofissued shares.


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prospectus

3.12 Determination of offer price:

Every share has a face value. But shares can be offered at

face value or at premium if it is justified. A justification is

given, showing the book value per share as mentioned

above, in the prospectus about the offer price of shares.

3.13 Application Procedure:

A detail procedure of application, along with specimenform, such as numbers of shares and value per lot, joint

applicants, how to fill up, where to deposit, how to pay,

NRB applicants, FC accounts etc. are mentioned in the

prospectus.


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prospectus

3.14 Allotment procedure:

Generally, a quota is reserved for NRB and mutual funds.

A detail Break up is given in the prospectus about the

proposed allotment procedure. It is also mentioned howoversubscription and under subscription to be managed.


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prospectus3.15 Refund of subscription money:

In case of oversubscription in any category of shares to beallotted on the basis of lottery .So it is mentioned in theprospectus that how and when refund of subscription money tobe made to the failed applicants.

3.16 Track record of performance:

Specially authenticated financial statements for last five years (if

applicable) are given in the prospectus. From these financialstatements prospective investors may have ideas about-

trend of revenue generation;

trend of profitability-GP, OP,NP etc;

retained earnings;

earning per share (EPS);

change in capital structure year by year;

liabilities and obligations;

financial strengths;

Cash flow situation etc.


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prospectus

3.17 Financial analysis of recent financialstatements:In this part, key financial ratios are given to facilitatethe users to analyze the statements in respect ofprofitability, efficiency, liquidity etc. A prospective

investor may have a look on the following importantratios-

EPS- to have an idea about profit per share and itstrend to forecast dividend in future;

NAV per share- to have an idea about thejustification of offer price and to forecast the market

value of shares in future;

ROEto have an idea about the earning ratio ofshareholders fund. --


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prospectus

--In addition to above, details of business and products,

future plan and prospects, related party transactions, CIB

report, list of bankers to the issue, auditors report, latest

financial statements, Credit Rating reports (in case ofbanks and financial institutions) etc. are given in the

prospectus.


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4.0 Conclusion.

The basic objectives of a prospectus is to invite

general public, with complete, true and fair

disclosure of facts and information, to subscribe

in the share and securities of a company.Although the ultimate goal is same, the different

authority, people or group of people may

analyze the prospectus in different manner.

Documents

Analysis of Prospectus