A company’s 10-K contains a wealth of information for investors. Here’s how to find it

Publicly traded companies are required by the Securities and Exchange Commission (SEC) to file an annual report following the outline provided on Form 10-K. They provide a comprehensive overview of a company’s business and financial standing, and are part of the SEC’s disclosure requirements to ensure investors have adequate information when making decisions to buy or sell securities.

What’s in a Form 10-K?

By its simplest definition, a 10-K tells you how well a business performed during the fiscal year.

“It is the story of their business operations over the past 12 months,” says Glenn Davis, a certified public accountant and director of risk advisory services at Kaufman Rossin. For anyone interested in investing in a company, a 10-K can be a powerful tool for understanding the risks, opportunities, and the viability of an organization.

In the 10-K, investors can find an overview of the company’s business practices, financial data and operating results from the past year, risks the organization is facing, and discussion from management about their perspective on the organization, among many other topics.

“The SEC requires different things you must disclose,” says Adam Finerman, a lawyer and co-leader of the IPOs and securities offerings team at Baker Hostetler. For this reason, all 10-Ks follow the same structure based on the SEC’s form.

10-Ks can be extremely long, sometimes hundreds of pages. However, not everything is going to be relevant for individual investors. For example, as Davis explains, the form contains a section about mine safety disclosures, which unless you’re looking into a mining company, is probably not going to be relevant.

These documents do have quite a bit of overlap with a company’s annual report to shareholders, which is also required by the SEC. But 10-Ks tend to provide more detailed information. Some companies will even use their 10-K as their annual report to shareholders.

It’s also important to remember 10-Ks are written by the companies. While the SEC monitors the filings, they don’t come from a completely objective, outside perspective.

“It’s a memoir, written by the people who want to tell you the story in a certain way,” Davis says.

This isn’t to say that the information contained in the 10-K is likely to be false. The law prohibits that. It’s just important to understand the point of view from which it was written when you’re considering investing your money.

How to read a Form 10-K

Form 10-Ks are divided into four main parts. If you want to, you can read the whole document cover to cover, but it’s usually not necessary. Instead, experts suggest going over the following sections.

Business description and summary of operations
Found in Part I, this section is full of qualitative analysis on the business itself. “In brief, it tells you: ‘This is what we do,’” Finerman explains. The section may note the company’s goals, its history, and position in the marketplace.

Understanding exactly how a business operates can be crucial in adding context to the rest of the document. For example, it wouldn’t be an immediate area of concern to read that a hotel lost money or had low profits during the pandemic in 2020. On the other hand, if a company that makes surgical masks was down in 2020, that might raise some red flags. So knowing what the business offers and how it works will be integral to interpreting other sections of the document correctly.

Risk factors
Immediately following the business section are the risk factors. This section describes any risk the company may be facing that investors should know about. According to Finerman, this section on its own can be very long. However, the general rule is that the risk factors go in order of importance.

“The challenge with the risk factors is that they are addressing the known risks,” Davis explains. For example, five years ago most companies weren’t writing about a potential pandemic. The goal is to give as complete a picture as possible, but not everything can be predicted.

Legal proceedings
Toward the end of Part I, a company will include a section detailing the legal proceedings it is currently involved with.

“In America, litigation exists,” Finerman says, “I wouldn’t be unduly alarmed by the existence of ongoing litigation.” Instead, make sure there aren’t any glaring patterns, things like multiple workplace safety violations, sexual harassment suits, or anything that seems unusual for a business of the type you’re looking at.

Management’s discussion and analysis
In Part II of the 10-K, you’ll want to make note of the management’s discussion and analysis. In here, management discusses its perspective on business results over the past 12 months. “Usually they’re comparing it to a prior period,” Davis says. Management may also discuss risks in more detail and provide explanation for how the organization is addressing them.

Financial data
Generally speaking, the financial data includes three audited major financial statements: the balance sheet, income statement, and cash flow statement. Found in Part II, these three documents are used to evaluate a business’s health. Typically, you’ll also have 3-5 years of comparatives.

“You want to see consistency of earnings. You want to see consistently high gross margins,” Davis says. Taking it a step further, you could also compare competitor’s financial data. Any company that is consistently beating their competition may be one worth looking into more.

Other sections
Other parts that are worth looking into include the “controls and procedures” and “changes in and disagreements with accountants on accounting and financial disclosure” sections.

The first includes information about the way the company is meeting objectives for reliable financial reporting, among other things. The second includes any disclosures about changes and disagreements a company has had with accountants. According to the SEC, “many investors see this disclosure as a red flag.”

Where to find a company’s Form 10-K

Filing deadlines for 10-Ks depend on a company’s size.

Organizations are categorized into three groups to determine their filing date: large accelerated filers, accelerated filers, and non-accelerated filers. Though there are various conditions to be met for each category, generally it depends on the amount of stock a company has issued for public trading, known as its public float.

Large accelerated filers have a public float of $700 million or more and are required to file within 60 days of the end of their fiscal year. Companies with a public float between $75 million and $700 million are considered accelerated filers and get 75 days. Those with a public float less than $75 million are required to file within 90 days of their fiscal year-end and are considered non-accelerated filers.

All 10-Ks are publicly available, and investors can find them in a number of places. Many companies include them in the investor relations section of their website. 10-Ks are also available in the SEC’s EDGAR database. You can search by company name or ticker symbol. Once you’ve found the company you’re looking for, EDGAR shows search results in chronological order and identifies the filing by form type.

Form 10-Ks may seem intimidating at first, but they’re crucial documents when deciding where to invest money. As Finerman explains, “If you start looking at them more frequently, like anything, you’ll get better at it.”

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