Guide to Reading an S-1 Statement

By Colin Dodds · August 10, 2021 · 5 minute read

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Guide to Reading an S-1 Statement

What Is An S-1 Form?

An S-1 statement is the registration form companies must file with the Securities Exchange Commission (SEC) to issue new securities. As such, it’s a necessary document for any company preparing for an initial public offering (IPO) to list on a national exchange, such as the Nasdaq or the New York Stock Exchange.

The form serves as an introduction for companies hoping to raise money from the investing public, in which they essentially lay out their business plan. That includes explaining its current business model, its place in the current competitive landscape, as well as introducing managers and sharing a short prospectus for the stock itself. The form also includes the company’s methodology for formulating the stock price, and disclosures about how the company expects its IPO to impact the stocks of any existing public companies.

Recommended: What Is an IPO? Everything Investors Need to Know

Thoroughly reading an S-1 is a great way for investors to research a company directly, rather than gathering information from third-party sources.

Where Can You Find S-1 Filings?

The S-1 form, like all SEC forms, is publicly available. You can typically find it by going to the “investor relations” section of a company’s Web site, or by searching on the SEC’s EDGAR (Electronic Data Gathering, Analysis, and Retrieval) system.

The EDGAR system is free and publicly available. It allows you to search by company, or even by form type. So, for example, you could look for all the S-1 registrations for a given period.

How to Read An S-1: Section Breakdown

There are several different sections of the S-1 form that contain helpful information for analyzing a stock.

The Box

The beginning of the form consists of a section often called “The Box,” which summarizes the major highlights of the document. The Box usually includes the following information about the company:

• Background information

• Industry information

• Competitive strengths

• Business strategies

• Risks

• Financial data

• Description of securities it plans to sell in its IPO

The box is where the company will try to tell its life story, its plan for the future, and why it is a worthwhile investment. It is, in some ways, a pitch to prospective investors. As such, it can be surprisingly non-technical, without some of the financial and legal jargon that can make financial statements so difficult to read.

Management’s Discussion & Analysis (MD&A)

This is where the company explains and offers context around the financial statements that appear in other sections of the S-1 registration.

This usually includes operating performance metrics, as well as how different business segments performed. This is also where management often elaborates on some of the risk factors that affect or will affect the company. Sometimes, a company will also use the MD&A as a place to share their long-term outlook.

Selected Consolidated Financial Data

This is the section where you’ll get to the numbers that matter, where the company shares a condensed statement of its income, balance sheet and cash flow.

Those statements present a quarter-by-quarter illustration of the company’s financials over the previous two years, showing its growth, capital expenditures, and other trends in the business. While those numbers may well tell a story on their own, they may be worth perusing with the commentary and background of the MD&A in mind.

Recommended: Using Fundamental Analysis to Choose Stocks

Description of Capital Stock & Underwriting

While the other sections tell you what the company is, what it does, and how it’s doing, this one gets to the main point of the S-1 – what the company is selling, namely, its stock.

This section is where investors can dig in to understand the security that will be making its debut. It includes details of shareholder rights, such as its voting and conversion rights. It also lists the investment banks that the company has hired to sell its IPO shares to large investors.

Description of Capital Stock & Underwriting even gives a preview of the IPO itself, disclosing the stock’s offering price, the number of shares the company plans to sell, and the total proceeds that the company hopes to raise in the IPO.

Recommended: How Are IPO Prices Set?

Executive Compensation

This is the section that discloses how much senior management makes in salary and other compensation, and can give investors a sense of the net worth and motivation of the leadership.

Related Party Transactions

This is where investors get a glimpse into who the company is working with. It’s a chance to connect the dots, and see who’s backing the company. The Related Party section is where a company has to disclose any transaction with a private equity firm, or a family member.

The Footnotes

Seasoned investors are also close readers of the footnotes of an S-1. This is where the most interesting little details are sometimes buried.

The Takeaway

Filing an S-1 is a key part of the IPO process. Reading an SEC S-1 filing can help investors understand what to expect about an IPO. Every company approaches their S-1 registration differently. Each company will provide different degrees of disclosure, and they will use the format of the S-1 to present that information in the way they believe will benefit them.

If you’re interested in using information from an S-1 to begin investing in IPOs, a great way to start is with the SoFi Invest® brokerage platform. You can use it to invest in not only stocks and exchange-traded funds, but also in IPOs and cryptocurrency.

Photo credit: iStock/insta_photos

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