A prospectus is a document that is published by a company prior to raising capital.
The most important type of prospectus is that issued prior to an IPO as:
- The company is usually trying to raise a substantial amount of capital.
- The company has no track record and has previously published less information than companies that are already listed.
A prospectus is in some ways similar to an annual report: it contains a full set of financial statements together with various non-financial information.
IPO prospectuses usually contain more useful information than an annual report. It is usually much easier for an investor with no prior knowledge of a company to analyse it at IPO (relying primarily on the prospectus) than later when there are more, but individually less complete, sources of information.
The level of detail required in a prospectus can make it a very expensive document to produce.