How to Read a 10-K

by April 1, 2020
You can find out a lot about a company by reading its Form 10-K. Here’s what to look for.
Image by Pixabay user Stevepb

A Form 10-K is an annual report that companies file with the SEC. Companies that file 10-Ks must also file quarterly reports, or 10-Qs. Unlike 10-Ks, 10-Qs are less comprehensive and are unaudited. 10-Ks are generally audited and extremely detailed, providing much more information for your reporting than 10-Qs. In fact, they often even have more information than annual reports to shareholders.

10-Ks include potential risks for the company, audited financial statements, a narrative about financial results in the company’s own words, and management expectations for the following year. Here’s a breakdown of what you’ll find.

Part 1

“Business” includes a description of the business conducted by the company: its main products and services, the markets in which it operates, and so forth. It may include applicable regulations, information on operating costs, or competition the company faces.

“Risk Factors” provide detailed information on the risk the company faces, typically in order of importance. As a reporter, you can tease out whether these risks apply to the industry sector or to the company itself.

“Unresolved Staff Comments” include the answer to questions raised by the SEC on previously filed reports that have not yet been addressed.

“Properties” has details on the company’s physical properties.

“Legal proceedings” describes significant legal proceedings or pending lawsuits.

“Mine safety disclosures” includes information about mine safety violations or other regulatory matters.

Part 2

“Market for Registrant’s Common Equity” has details about the company’s equity securities, number of shareholders, and that kind of information.

“Consolidated Financial Data” has five years’ worth of financial information, though not in as much detail as the “Financial Statements and Supplementary Data” section below.

“Management’s Discussion and Analysis of Financial Condition and Results of Operations,” abbreviated as MD&A, includes detailed operation and financial results in the company’s own words. It might include information on how the company is addressing risks, explanations for changes in results compared to the previous years, and any other information the company deems relevant.

“Quantitative and Qualitative Disclosures about Market Risk” assesses the company’s exposure to market risks, whether it’s due to commodity prices, foreign currency exchange, or something else. It may also include ways the company manages these risks.

 “Financial Statements and Supplementary Data” includes balance sheets, cash flow statements, stockholder equity, an income statement, consolidated statements of operation, and more. This section also includes an auditor’s report.

“Changes in and Disagreements with Accountants on Accounting and Financial Disclosure” includes disagreements with accountants if they have been changed. This is an area to keep a close eye on.

“Controls and Procedures” explains the company’s disclosure controls and how it controls financial reporting internally.

“Other Information” is anything that wasn’t reported on a different form for the fourth quarter and is required to be.

Part 3

“Directors, Executive Officers and Corporate Governance” has background information on the company’s executives and directors, as well as the company’s code of ethics.

“Executive Compensation” has the juicy details on how much top executives earn, as well as any other compensation programs and policies.

“Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters” has details on the shares company directors and executives own.

“Certain Relationships and Related Transactions, and Director Independence” has information on relationships between company directors, officers and family members, as well as whether or not directors are independent.

“Principal Accountant Fees and Services” includes fees paid to accounting firms throughout the year. These are sometimes incorporated into a proxy statement, which may be filed a few months after the 10-K.

Part 4

“Exhibits, Financial Statement Schedules” is a list of financial statements and exhibits. It could include contracts, bylaws, and more.