Investors should understand WHY the funding is being raised. Is it for repaying the debt or for partly paying debt and expanding the business or for using the funds for corporate purposes.
Before making any investments, every investor must follow the golden rule of only investing in businesses that they understand. Thus, it is necessary to understand the business of the company that is coming with an IPO
Understanding the Strengths, Weaknesses, Opportunities and Threats that belong to the company. This study also helps us understand the current health of the company and the future prospects that it may hold.
Investors shouldn’t forget to compare the IPO company with its peers. Is the company doing better than its peers or is it par with its peers or is it underperforming? The Red Herring Prospectus contains all the necessary valuations comparisons between the company and the peers to help us analysis the IPO company better.
After studying the company and market conditions, the investor should have a clear goal with regards to his/her investment horizon. They should be clear about the fact whether they want to book profits with the listing gains or hold the company stock for longer.