IPOs - Speak The Basics (Very Good Reading) (13)

Declining revenue --

If revenue for a company's most recent fiscal year is down from the year-ago period, it may be time to run as far away as possible.

Revenue for companies looking to go public should be growing rather significantly.

Even slowing revenue growth is a warning sign.

At the very least, read a company's explanation for the revenue slowdown, found later in the prospectus.

Revenue totals can be found in "SummaryConsolidated Financial Data" or "Selected Consolidated Financial Data."

The explanation behind the results is found in "Management's Discussion and Analysis of Financial Condition and Results of Operations."



Declining margins --

Along the same lines as declining revenue, declining operating margins are not a good sign.

It means the company is becoming less and less profitable.

However, if a company is in a fast-changing, highly competitive industry, it may need to sacrifice profitability for market share and brand equity.

Again, read the explanation behind the shrinking margins.

Margin totals found in "Summary Consolidated FinancialData" or "Selected Consolidated Financial Data."

Explanation behind results can be found in "Management's Discussion and Analysis of Financial Condition and Results of Operations."