Tag Archives | IPO

Securities Act of 1933

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Primary Market
Securities Exchange Act of 1934
Investment Banks
Secondary Market
Initial Public Offering (IPO)

Securities Act of 1933

The Securities Act of 1933 was a landmark decision in the United States to regulate the issuance of newly issued shares into the market – an initial public offering. The act is also there for companies to register before the issuance as to ensure reliability.

Securities Act of 1933 Meaning

The Securities Act of 1933 followed the stock market crash in 1929. It was a movement to regulate the markets as to not mislead investors. Furthermore, the idea requires due diligence so that the best possible information would hit the market. The 1933 Securities Act was also meant to do away with insider information. By requiring this information to be provided pre-issuance investors presented with the opportunity to buy shares of the firm, during the investment banker’s road show, can make well informed decisions. The due diligence required by the 1933 Securities Act is to have a full audit and compliance with Generally Accepted Accounting Principles (GAAP). Without registration and a following of the 1933 Securities Act rules a firm cannot be listed on a U.S. stock exchange until the requirements are satisfied.

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securities act of 1933

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Red Herring Definition

See Also:
Ten In-House Secrets for Reducing Your Company’s Legal Costs
Board of Directors
Benefits of an Advisory Board
How to Form an Advisory Board
Why is Intellectual Property Risk Everybody’s Problem

Red Herring Definition

The red herring definition, or preliminary prospectus, is a legal document that must be submitted to the SEC for approval prior to an initial public offering (IPO). It is prepared by the company that is planning to go public in conjunction with the investment bank syndicate that is underwriting the IPO.

Red Herring Document

Furthermore, the document includes details about the company. It includes an explanation of the company’s operations and competitive position as well as copies of its financial statements. The document also includes the details of the IPO, including the type of security (common stock, preferred stock, etc.) offered, the number of shares offered, and the anticipated share price.

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red herring definition

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Initial Public Offering (IPO)

See Also:
Finance Beta Definition
Stock Options Basics
Employee Stock Ownership Plan (ESOP)
Blue Sky Laws
Subscription (Preemptive) Rights

Initial Public Offering (IPO) Definition

An Initial Public Offering (IPO) is the process of selling a company’s stock to the public for the first time. Before the IPO the company is private; after the IPO the company is public. The IPO process is typically underwritten by a syndicate of investment banks. The process follows several steps, described below.

Advantages and Disadvantages of IPOs

Going public has at least two advantages: greater liquidity of equity and access to a larger pool of capital. There are at least three disadvantages to going public: dispersion of control, required adherence to regulations and public scrutiny.

IPO Process

The IPO process includes the following steps:

1. The company chooses a syndicate of underwriters (see below)
2. The company and the underwriters compose a preliminary prospectus (see below)
3. The SEC reviews the prospectus and approves the IPO
4. The underwriters determine the value of the firm and the structure of the IPO
5. The underwriters go on a road show to gauge investor interest in the IPO (see below)
6. The investors express level of interest and the underwriters set the offer price
7. The securities are distributed to the public (see below)

Underwriter Duties

In the IPO process, the underwriters – a syndicate of one or more investment banks – are responsible for registering the IPO with the SEC, valuing the company that is going public, structuring the issuance of securities, pricing the securities, and marketing the securities to potential investors. The underwriters also bear the risk of distributing the securities.

Preliminary Prospectus

The preliminary prospectus, or red herring, is a legal document that must be submitted to the SEC for approval prior to an IPO.

The document includes details about the company, including an explanation of the company’s operations and competitive position, and copies of its financial statements. The document also includes the details of the IPO, including the type of security (common stock, preferred stock, etc.) to be offered, the number of shares to be offered, and the anticipated share price.

Road Show

A road show is when the underwriters travel the country, or the even the world, to pitch the IPO to potential investors. The idea is to determine whether investors are interested in the offering. And if so, then they need to determine how many shares they will purchase and what price they are willing to pay. The investors are typically large institutional investors – mutual funds and pension funds.

IPO Pop

Underwriters take on significant financial risk when they commit to an IPO. If the market is not interested in the offering, then the underwriters may be stuck holding securities nobody wants.

In order to ensure market interest in the offering, underwriters will often deliberately under-price the securities for the initial public offering. They sell it for cheaper than it is worth. So when the shares go public, investors buy up the bargain-priced shares. This causes them shoot up in value on the first day of trading. You may know this as the “IPO pop.”

If you don’t want to leave any value on the table, then download the Top 10 Destroyers of Value whitepaper.

Initial Public Offering

Strategic CFO Lab Member Extra

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Initial Public Offering

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Investment Banks

Investment Banks

Investment banks are banks that offer expert financial services. The services include the following:

They also serve as financial intermediaries between companies issuing securities and the investing public that purchases the securities; however, they do not accept deposits or offer loans like commercial banks.

League Tables

League tables rank investment banks according to performance in various categories. For example, the mergers and acquisitions league table would list the top M&A dealmakers according to the deal volume and market share.


It may be time to partner with an investment bank, but if you do not have a relationship with the CEO, then it may be difficult. Before you invest any more time, develop a relationship with your CEO so they see you as a wingman. If you’re interested in becoming the trusted advisor your CEO needs, then download your free How to be a Wingman guide here.

Investment banks

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Access your Projections Execution Plan in SCFO Lab. The step-by-step plan to get ahead of your cash flow.

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Investment banks

See Also:
Capital Structure Management
Agency Costs
Mining the Balance Sheet for Working Capital
Inventory to Working Capital
Venture Capitalists Definition
Commercial Bank

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Due Diligence

See Also:
Due Diligence on Lenders
Auditor
Mergers and Acquisitions (M&A)
Audit Committee
Loan Agreement

Due Diligence Definition

The Due Diligence definition is an extensive qualitative and quantitative look at a company. It helps company leaders make the best informed business decision about a company. Furthermore, Due Diligence is often associated with audits, where it is required before a public offering. In addition, it is associated with mergers and acquisitions to reduce the risk in the market for these activities.

Due Diligence Meaning

Due Diligence often becomes necessary when a large transaction is about to take place like a merger or loan agreement, or when the company’s financials are going to be presented to the public. Oftentimes, due diligence requires the assessment to be both qualitatively as well as quantitatively.

Qualitative Due Diligence

A qualitative act of due diligence may be to assess the mental state and capability of the management. This can be done through the following:

Quantitative Due Diligence

In comparison, quantitative due diligence includes thorough investigations of the books and records. This can range from asset appraisals to day to day transactions. A thorough understanding of internal controls and its effectiveness also become necessary to ensure the risk for the business is as low as possible.

If you don’t want to leave any value on the table, then download the Top 10 Destroyers of Value whitepaper.

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10 Q

See Also:
Balance Sheet Definition
Income Statement
Cash Flow Statement
Pro-Forma Financial Statements
Statement of Financial Accounting Standards (SFAS) Fiscal Period 10K

10 Q Definition

What does 10 Q mean? The 10 Q definition is a quarterly cumulative financial statement required by the Securities and Exchange Commission (SEC) under the Securities and Exchange Act of 1934 for all publicly traded companies. The 10-Q filing deadline for financial data is always due 35 days after each of the first three quarters throughout the year. There is no 10 Q filing at the end of the year. This is because the more extensive and comprehensive 10K is due at year end.

10-Q Form

A 10-Q form requires that a company provide a balance sheet, income statement, cash flow statement, and a statement of stockholder’s equity. The 10 Q form should also disclose any major changes made since the last financial filing. These disclosures may include a change from one accounting method to another, or a discussion of a contingent liability such as an ongoing litigation. The SEC also requires that a company provide relevant financial data from the exact same filing time during the past year. This makes information readily comparable from one period to the next, and one year to the next so that investors can have a good picture or idea of where the company is heading.

10 Q Definition, 10-Q Form, 10 q

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