Investors are regularly presented with opportunities to invest via initial public offerings (IPOs) in companies that may appear to be promising businesses, but have not yet turned a profit. Without a track record of earnings, how can investors assess their future prospects?

IPOs without a track record of profits

Before listing, a company must comply with a number of admission rules, including a financial test to satisfy the Australian Securities Exchange (ASX) it meets minimum requirements for size, quality and operations. A company can satisfy this financial requirement by either demonstrating it has a track record of delivering a profit (the profit test) or alternatively has sufficient assets (the assets test). In turn, the assets test can be met in one of two ways, with a minimum of $5 million in net tangible assets (NTA), or a minimum $10 million market capitalisation (the ASX is considering changing the profit and assets tests thresholds).

In an article published by Cuffelinks, I outline nine factors we consider at Wilson Asset Management when assessing an IPO.

To read the full article, click here

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