How to Read an S-1 for Investors In the US Market
3 min read
A new IPO is exciting—but doing your due diligence can be tedious, especially with how long registration statements (form S-1) can be. You can find these forms on the Securities & Exchange Commission (SEC) website to learn about a company's profits, how they plan to use the capital, risk factors, and other vital points to consider as an investor.
Here are key points to look for to speed up your search of the best IPOs to target.
What is an S-1 or registration statement?
An S-1 form is the initial registration document required by the SEC for each US company that wants to issue new shares and is planning to go public before their IPO.
In an S-1, the company provides information on their current business model, how they plan to use the capital they raise from the sale of shares, and a prospectus of the security they're offering.
Some companies file a confidential registration statement, but others make it public. It's the first public document that newly public companies have to share in order to get their coveted publicly traded status.
Where can I find a company's S-1?
You can find a US public company's filed S-1 forms on the SEC's EDGAR database.
Search EDGAR using the US company's name or ticker symbol.
The SEC website shows all the latest public filings. For soon-to-be-public companies, that could be an S-1 (for domestic companies) or F-1 (for foreign companies who seek registration on American stock exchanges).
What to look for in an S-1 document
Prospectus: This is a piece of marketing material that will give you a better picture of a company's overall financial health. Note if the company intends to use the IPO funds to pay down debt, as it may be a red flag.
Income statement: The income statement lists company revenue, profit, expenses, loss, and other key numbers. Review these numbers on a year-over-year basis.
Risk factors: Understand the risks that come with investing in this specific company. Look for potential risks like nonexistent profit or pending litigation.
Quarterly results: You can find the company's quarterly results in the S-1, using the search feature on your computer. This can help you determine whether the company's business model makes sense and if growth is consistent.
Offering size: The company will have a specific amount in mind for the capital it hopes to raise in the IPO. You can search for "proposed maximum aggregate offering price" in the S-1 to find this number.
Dividend policy: This part will tell you whether the company intends to pay out dividends, which may influence your decision on whether to invest.
Empower yourself: Review the S-1 to make better choices on IPO investments
Understanding the S-1 form and the information it contains can help you see a company's financial picture, goals, and the risks that it faces—before you make the leap to invest.
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