In the progressive age of India, many companies offer Initial Public Offerings to invest in. Both beginners and expert investors can obtain high returns on such investments. However, it all comes down to a few questions and their accurate answers.
Designing your own IPO investment plan requires thorough research and critical thinking. But if you successfully do that, high returns come along, and you make a lot of money in the process. Hence, this article presents all kinds of questions that will help you gain assured returns through Initial Public Offering investment.
- Are you actually investing in an IPO?
Sometimes, investors confuse an OFS with an initial public offering. Both kinds of investments look nearly similar. However, there is an important difference.
An initial public offering company and the secondary market decide the price of the listed stocks.
On the other hand, an OFS is also known as Offer for Sale. These offers are provided not by the company, but the stakeholders of a particular company.
IPOs are much better in terms of returns and transparency. Hence, it is better to analyse and understand the offers you have in hand. You can find online platforms with comprehensive knowledge of the latest initial public offerings.
- What is the history of that company?
Such offerings include majorly a company and promoters if you choose the secondary market. The history of the company and its promoters should matter to you. It is necessary that the selected company has a clean past and has no legal issues. Past defaults, legal complain, or criminal proceedings don’t present any positive sign to put your faith in that company. A thorough analysis will help you find out a complete background of the companies.
- How has that company been performing?
Your chances of gaining high returns will depend on how a company uses your invested money. Hence, you should judge their past performance too. This is possible if you look at the age, growth rate, and the overall size of that company. Evaluate whether the size of that company justifies the growth rate that they are showing. Also, look at the experience that the company has in performing in their market.
- Do you see the actual financial profile?
The financial profile of a company needs to be strong. However, sometimes you come across bloated profits that hide the real financial state of companies. Thorough analysis and multiple scrutinising financial evidence are the right way to avoid bloated profits. Also, evaluate how that company has been changing accounting policies over a period of time.
- How profitable financial ratios look?
There are a number of ratios you need to carefully asses to ensure high returns. A company’s profitability depends on three major ratios:
- EPS or Earnings Per Share
- Return on employed capital
- P/E or Price and Earning ratio
Finally, you can inspect the goals such diversification, number of branches and others that a company desires to accomplish with the raised money. This will allow you to have a broad picture of the future returns associated with a particular IPO.