General Motors' IPO: Assessing an Investment

General Motors Co. priced its initial public offering Wednesday afternoon at $33 per share, meaning that the stock will begin trading on Thursday when the markets open. The Detroit-based automaker is raising more than $20 billion, making it one of the largest IPOs ever.

For any midlifer examining whether such an investment — or any initial public offering — is right for your portfolio, there's eight things that they should like at before making that decision.

And all eight can be found in the company's most-recent S-1 filing with the Securities and Exchange Commission. Here's what GM's filing discloses:

1. Financial performance. For many company's going public, the S-1 filing is the first time that they will have disclosed their revenue and net income — or net loss. Stocks of companies where the revenue and the profits are rising tend to increase. GM reports on p. 14 of its S-1 that it had $98.7 billion in revenue for the first nine months of the year and net income of more than $4.1 billion. In comparison, it lost more than $80 billion between 2005 and 2008.

2. What's going to happen with the money? The thing to look for here is whether the company is using the money being raised by the selling of stock wisely, or are they using the money to go off on some wild tangent. You'd like to see the money spent on the business. GM says on p. 38 of its offering that the money it's going to receive will be used to purchase shares of its preferred stock and to make a contribution to its employee pension plans.

3. The underwriters. These are the investment banks that sell the IPO stock to their clients. The bigger the banks, the more likely the IPO will sell strongly during its initial trading. Look at the cover sheet of GM's filing, and you see the names of every big investment bank in the country — Morgan Stanley, J.P. Morgan, Citi, Goldman Sachs, Deutsche Bank, Credit Suisse and Barclays. This is an offering that will have some pop when it begins trading.

4. Major shareholders. Ideally, you like to see the shareholders of a company maintain some skin in the game and not be selling all of their shares. GM is a unique case because the United States and Canadian governments are two of its largest shareholders, and both pumped money into the company last year to keep it from going out of business. Naturally, they'd like to get a return on their investment, so they're selling some of their shares in this offering. (See p. 236 of the filing.) What you don't want to see is executives selling major chunks of stock.

5. Risk factors. This is the cover-your-butt section of the filing, and it states anything and everything that could go wrong with the company. These are the things that companies disclose so if the stock price goes down, they can say they warned shareholders. If you go to p. 16 in the filing, you'll see that GM warns investors about the cyclical nature of the car business to the possibility of inadequate cash flow to the public perception of the company's brands.

6. Dividend policy. Some investors buy stock as a play on the dividends, which are quarterly payments of cash to people who own shares. GM says on p. 38 that it doesn't have any plans on paying a dividend to its investors.

7. Executive compensation. No one wants to invest in a company where the people in the corner offices are milking it. If you look on p. 234 of the filing, you'll see that new CEO Dan Akerson will get an annual salary of $1.7 million and stock worth $5.3 million over three years beginning in 2001. For a company the size of GM, that's reasonable compensation.

8. Related party transactions. These are business dealings between the company and companies owned by one of its board members, for example. Beginning on p. 242, GM lists these, including the fact that the husband of one of its board members works for a law firm that was paid $1.3 million by the auto maker in 2009. You don't want to see too many of these, and you don't want to see a lot of money changing hands in these transactions. It gives the impression that the board is filling their wallets and purses without caring for the shareholders.

If you want to check out the GM filing from earlier today that disclosed all this information, you can click here. Please note that it's more than 500 pages, so we're not talking about some light reading.