Dragon Company: A Prospectus Analysis - Essay Example

Running head: Dragon Company: A Prospectus Analysis Dragon Company: A Prospectus Analysis s What is a prospectus and what are the major components within a prospectus? (2 marks) The company prospectus contains information regarding the business of the company the audited financial statements and all the other information regarding the financial, operational and business aspects of a company. Risk Factors: The prospectus of a Company provides information regarding the risk factors and disclaimers. Although the risk factors contained in the prospectus may be different but are considered as an important part of a prospectus. Recent Developments: The prospectus provides the stakeholders with the information regarding the recent developments, which in any way can affect the company. Company Section: The section provides information regarding the history, main business of company, location and operation while stating the business plan followed by the company. Financial Information: The prospectuses under the section of use of proceeds describe the methods of funds rising, which will be adopted by the company. It also contains information regarding the financial position of the issuer before and after it receives the funds from the offering, describes the dividend policy etc. The prospectus also describes "selected Consolidated Financial Data and Management Discussion and Analysis of Financial Condition and Results of Operations" (How to read a Prospectus?) 2. What are four requirements for listing on the Australian Stock Exchange (ASX)? (2 marks) The principles on which the Listing Rules are based: Minimum standards of quality, size, operations and disclosure must be satisfied. Timely disclosure of the information affecting the security value or investment decisions should be undertaken. "The highest standards of integrity, accountability and responsibility of entities and their officers must be maintained. Practices must be adopted and pursued which protect the interests of security holders, including ownership interests and the right to vote".  (ASX, 2009) 3. What is the difference between the expressions “limited liability” and “no liability” and which is Dragon Energy? (1 mark) Limited liability means that the proprietor of the company only has to bear the loss equal to his share of capital in the company in case of the solvency of company. No liability means that the proprietor of the company does not have to bear any loss in case of the solvency of company. The Dragon Company is a limited liability. 4. What is an “underwriter”? Does Dragon Energy have an underwriter? If not suggest reasons why an underwriter may not be employed. (2 marks) If a company is planning to issue new securities it has the option of getting the issues underwritten. Underwriters are the institutions which undertake the agreement of buying the securities not subscribed for the investing public at the issue price. Underwriting is not necessary or compulsory. Underwriting is undertaken in order to remove the risks of under subscription of the shares. Ordinary offers and right issues both can be underwritten. The offer is not underwritten by the company 5. What are the estimated costs associated with the share capital raising? Provide details of these costs. (1 mark) EXPENSES OF THE OFFER: In case of full subscription the company is intending to pay approximately $240,000 in respect of experts’ fees, legal, accounting and other fees, design and printing costs, ASIC and ASX fees and other costs arising from this Prospectus and the Offer. 6. What is a dividend and does the company intend on paying one? (1 mark) Dividends are appropriation of profit after tax. The people managing the company receive salary against the management services performed by them with the share of the profits made by the company. Dividends paid by the company are of two kinds and at two different stages: a) In mid year after getting the financial results of the company as interim dividend. b) At the end of the year as the final dividend. The total dividend offered by the company is the sum of both interim and final dividend paid by the company. The Dragon group does have intentions to pay the dividends but the prospectus doesnt provide clear information for the dividend policy to be followed by the company. 7. a) What is meant by the expression “equity capital”? b) What amount of capital does Dragon Energy wish to rise and what is the issue price per share? The funds which the owner provides to finance the business is known as Equity Capital. The company offers the issue of up to 7,500,000 fully paid ordinary shares at an issue price of 20 cents each to raise $1,500,000 c) What does the company intend using the funds for? The funds raised under the Offer will be allocated to the exploration and evaluation of the Company’s projects in accordance with the work programs set out in the Independent Geologist’s Report. (3 marks) 8. What is the minimum number of shares that an initial subscriber may purchase and when did the applications close for this issue? Briefly describe the process you would undertake to subscribe to this issue. (2 marks) Applications must be for a minimum of 10,000 Shares at 20 cents per Share. The applications closed at 5.00pm WST on 18 February 2009. Applications for Shares under the Offer will have to fill the Application Form issued with and attached to this Prospectus in Section 13.0. The applicants will have to complete the form in accordance with the instructions set out on the back of the Application Form. The completed Application Form and accompanying cheque(s) should be posted or delivered, at any time after the issue of the Prospectus, to the address mentioned in the prospectus. 9. Discuss the meaning of the terms underpricing and overpricing as they relate to an IPO. If the company’s shares listed on the ASX, were they under priced or overpriced? Provide details to support your answer. (3 marks) The pricing of an IPO at less than its market value is known as under pricing. Overpricing can be defined as selling the IPO at a greater value than the market value. The Company intends to undertake on entitlement issue of Options to Shareholders registered on the date shortly after the Shares commence trading on ASX (the final date to be confirmed by announcement to ASX). The proposed non renounce able entitlement issue of Options will be on the basis of 1 Option for every 4 Shares held. The Options will be issued at a price of 0.1 cent each with an exercise price of 30 cents and an expiry date of 31 May 2012. This content can be found on the following page: http://www.investorwords.com/5129/underpricing.html 10. What are the risk factors associated with this prospectus? Briefly describe each. The prospectus also provides information regarding the specific risks for company: The limited history of company in business, fluctuating Phosphate prices, dependence of company performance on key personnel. The company also does not have prior market for shares. Industry Risks include: Reliance on third party, Metallurgy, Research and analysis, Failure to lodge a caveat. General Risk factors include: Economic, environmental, stock market and governmental policies risk factors. References: ASX, (2009). ASX Listing Rules, Retrieved as on 10/05/2009 from http://www.asx.com.au/ListingRules/chapters/Introduction.htm How to read a prospectus? Retrieved as on 10/05/2009 from http://www.fraudbureau.com/investor/education/article3.html Read More