Chapter 5
Making Sense of the Prospectus
Most of the specifics you need to evaluate an initial public offering (IPO) are contained in the prospectus. The company is required by law to disclose all material information—the good, the bad, and oftentimes the ugly. It’s all in there.
And it can be overwhelming. Keep in mind that the prospectus can easily be hundreds of pages. You’ll also find in-depth disclosures on complicated accounting principles as well as legal matters, such as for patents.
Because of all this, professional investors do not read the whole prospectus (which is also referred to as the S-1). There’s simply not enough time to do this. Like any financial document, the key is understanding the relevant parts. The good news is that ...
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