Because companies must adhere strictly to SEC regulations, initial prospectuses are similar in their organization. Each S-1 generally consists of the following sections:

Front Section -- An S-1 contains a small amount of information not available in a prospectus. In this first section, you can quickly find the issuing company's phone number and get a vague sense of the future offering price.

Cover/Inside Cover -- The prospectus cover outlines the general terms of the offering, including names of the underwriters, number of shares offered, and pricing information. The actual share price is absent from a prospectus until the day of the offering.

Prospectus Summary -- Here you will find a brief synopsis of the company's business and history, a modest discussion of the change in capitalization to occur as a result of the offering, and a useful summary of financial information covering the last five years, if available. If you are screening prospectuses for investment ideas, start here.

Risk Factors -- After you have read a few prospectuses, you will become familiar with the "usual suspects" in this section, including "Possible Volatility of Stock," "Limited History of operations," "Dilution," and "Dependence on Key Personnel." Nevertheless, this section is a worthwhile read to be sure that you understand the challenges facing the company's management. The discussion of competition can be sobering, but it can also provide a means to compare the value of the issuer against the financial performance and market valuation of its competitors.

Use of Proceeds -- Although seldom enlightening ("proceeds will be used for general corporate purposes"), this section will occasionally reveal that most of the money from the offering is earmarked for a specific, do-or-die project or for lightening a crushing debt load rather than for expansion.

Dividend Policy -- If you are investing in IPOs, you probably are not concerned with dividends. In any case, no operating company is likely to make a commitment to pay dividends in a prospectus.

Capitalization -- This section displays a before-and-after-offering look at the shareholders' equity and long-term debt portions of the company's balance sheet. Unfortunately, since the ultimate offering price of the stock will not be known, you will have to make an estimate and fill in the blanks.

Dilution -- This section provides a formula for calculating the impact of the new equity offering on current shareholders, who should expect to see a change in their book value per share and the percentage of the company they own.

Selected Financial Data/Management's Discussion and Analysis -- These paired sections are of immense value in helping an investor interpret a company's business from a financial standpoint. These sections offer fairly detailed income statement and balance sheet data for up to five years, recent quarterly figures, and an analysis of recent results. Often, the "Overview" portion of the Management's Discussion will provide a worthwhile summary of a company's basic business model.

Business -- In this section, the company's management outlines its business plan. This is the part of the prospectus in which management has the opportunity to sell investors on the company, but without the benefit of lofty income projections or hyperbole. Generally, management describes the perceived business opportunity, outlines its strategy to exploit the opportunity, and describes its current products and activities, usually relating them to the company's overall expansion strategy. Management lays out its best case for investing in the company here. If, after reading this section, you do not understand the business or remain unconvinced about the prospects for company, you probably should not buy the stock.

Management -- You will probably never get a chance to meet with company management, so you will have to settle for perusing this section. Does management have the expertise required to execute the stated business plan? Do some officers have unusual or excessively lucrative employment arrangements with the company?

Certain Transactions -- Although questionable self-dealing transactions would be disclosed here, most prospectuses discuss relatively innocuous financing transactions between the company, its backers, and its management.

Principal Shareholders/Description of Capital Stock -- This is where to find out who owns the company and who, if anyone, is selling stock in the offering. Generally, it is a bad sign if top management and major shareholders are selling large portions of their holdings in the offering. Usually, most of the unsold shares held by existing shareholders are subject to a "lock-up" period of 180 days. This means that existing shareholders are prohibited by law from selling stock until six months after the offering date. Investors should be aware that large blocks of stock could appear on the market after expiration of the lock-up period.

Underwriting -- If you are interested in seeing the deal cut by the co writers, this is your section. But you will have to wait until the final prospectus (Form 424B filing) to get any meaningful data.

Legal Matters/Experts/Additional Information -- These sections usually contain standard legal boilerplate information. If any one of these sections is more than one or two paragraphs long, be sure to take a look at it.

Financial Statements -- Standard financial statements are presented here. It is a good idea to check the auditors' report for any qualifying language and examine the notes to the financial statements for any accounting oddities and subsequent events.

Other Documents -- S-1's often contain several attachments, including articles of incorporation and stock option agreements. These are not usually presented in the printed prospectus; however, they may be of more interest to lawyers than investors.