Finance: What is a Prospectus?

What is a prospectus? A prospectus is a document that gives the investor information on their investment. The SEC says that if a company is going to offer investments to the public, then they need to be accompanied by a prospectus. They provide things like company financials and share purchase info (price, amount, etc.).

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Transcript

00:23

those units cost the company to produce? Who's running this show and did [list of questions]

00:28

they have any felony convictions? Who's on the board? Any lawsuits outstanding

00:32

against the company? Yah it's stuff like that. So prospectus, is the set of papers

00:36

that covers all of the above and goes out with a new security that's being

00:40

offered to buyers and that can be equity and or debt and or both. Prospecti are

00:45

generally given for larger financial offerings. That cover more than just

00:50

sophisticated investors. For small private offerings, money is raised via a

00:54

very simple contract. Usually just a few pages are so. Covering the basics that a [man signing contract]

00:58

prospectus we cover and that includes what common industry parlance refers to

01:02

as a big boy letter. Meaning that if the investment goes fully bankrupt, that you

01:08

by signing here, you represent and warrant that you are a big boy or girl

01:12

and that you have the financial sophistication to understand the risks

01:17

and you won't cry about things if they turn sour. But small investment which

01:21

carries extremely high risk of full failure. [man walking with papers] Yeah those are usually done by

01:26

professionals ie the wealthy. So the government doesn't view them as needing

01:31

the same kind of training wheels and safety netting that the average Joe Blow

01:35

needs when he's making an investment. Prospecti are required in registered

01:39

offerings, to protect the average investor, from sleazy wheeler dealers. Who

01:44

might not disclose that the wastewater from the company's chemical processing

01:48

plant did in fact produce three headed fish downstream. As cool as it is to have[3 headed goldfish]

01:53

three headed fish, well three headed people, less cool. So it might be a

01:57

problem for that fertilizer producer in the future. That prospectus marketing

02:02

document reflects the fact that the company, is you know, prospecting for

02:06

money here. And in the process the company has to disclose all the basics

02:09

about what it's raising the money for, the good, the bad, and

02:13

the three-headed. Yeah glug-glug that's a prospectus. [man in study with scotch]