By Darren Chervitz, CBS MarketWatch

All-hands Adequate research is, without a doubt, the most effective way to identify and stay away from the IPO disasters waiting to happen. The prospectus, which contains nearly all aspects of a company's business and game plan, is the first place any investor interested in purchasing a new issue should look.

Finding an online prospectus is a snap Getting a prospectus is easy. If you're reading this online, you should be able to electronically download a prospectus without any problem. Prospectuses for all US companies are available for free from the Securities and Exchange Commission's Web site, FreeEDGAR.com, or on a delayed basis from EDGAR Online.

If you don't have access to a computer -- or your access is too slow for downloading a prospectus (which is an extremely long document) -- you can also obtain a prospectus by calling the investment banks that are involved in selling the shares of an IPO. Calling the company will also work.

The fine print: A confusing read Warning: A prospectus is not an easy read. Written mostly by lawyers, they are laden with confusing jargon.

In addition, the tone of these documents is decidedly negative. Companies have to be completely honest about all of their warts in order to avoid future lawsuits. Thus, bullish statements are often followed by cautionary disclaimers, and there's an entire section titled "Risk Factors" dedicated to what may go wrong at the company.

Before you get scared off from investing in an IPO, however, you should realize that many of these risk factors and disclaimers are included in every prospectus. Then again, just because they're boilerplate doesn't mean you shouldn't pay attention.

Following is a list of some warning signs that prospective IPO investors should pay close attention to. In general, they're listed in order of where one would find them in the prospectus, from the front of the document to the end.

Again, this is only a partial list, and in the final analysis, what's most important is that an investor feels comfortable with a company, its business, its market position, its growth strategy, and its management.

Second-tier investment banks -- Investment banks hired by a company to handle an IPO must do a fair amount of due diligence, so it's always comforting when the names on the front of a prospectus are well-known and well-regarded. Of course, even the best banks take out some turkeys. Plus, a number of small regional banks have solid reputations. Just be a little more careful if the name of the investment bank doesn't ring a bell. Found on bottom of front page.

Recent developments -- This section, usually added to amended filings, updates any recent notable events, often how a company performed in its most recent quarter. Make sure this section is mainly good news. Usually found in "Recent Developments" (not always there).

Selling stockholders -- It's usually a bad sign when a large number of shares in an IPO come from selling stockholders, meaning pre-offering investors who are cashing out. Not only does it mean that the company won't receive the money from the sale of those shares, but it also should make one wonder why investors would want to sell their shares so quickly if a company's prospects are strong. In fact, investors usually prefer that management retain a sizable stake in the firm after the offering is completed. The number of selling stockholders is found in a section called "The Offering," while management's total stake can be found in "Principal and Selling Stockholders."

Use of proceeds -- If a company is st majority of the money to pay off debt or dole out a huge dividend to pre-IPO investors, watch out. That means people buying shares in the IPO are in essence paying for the company's past, not its future. Also be careful when a company says it's allocating most of the money for general corporate purposes. It's comforting if a company has more specific ideas about where your money will be invested -- acquisitions, advertising, capital formation, research and development, etc. Found in "Use of Proceeds."

Declining revenue -- If revenue for a company's most recent fiscal year is down from the year-ago period, it may be time to run as far away as possible. Revenue for companies looking to go public should be growing rather significantly. Even slowing revenue growth is a warning sign. At the very least, read a company's explanation for the revenue slowdown, found later in the prospectus. Revenue totals can be found in "Summary Consolidated Financial Data" or "Selected Consolidated Financial Data." The explanation behind the results is found in "Management's Discussion and Analysis of Financial Condition and Results of Operations."

Declining margins -- Along the same lines as declining revenue, declining operating margins are not a good sign. It means the company is becoming less and less profitable. However, if a company is in a fast-changing, highly competitive industry, it may need to sacrifice profitability for market share and brand equity. Again, read the explanation behind the shrinking margins. Margin totals found in "Summary Consolidated Financial Data" or "Selected Consolidated Financial Data." Explanation behind results can be found in "Management's Discussion and Analysis of Financial Condition and Results of Operations."