Form 10-K is the most comprehensive compilation of information on a company. form 10-K is a document required by the Securities and Exchange Commission (SEC) document for all public companies. The document is the best source of information on a company, providing, among other information, a description of the business and industry, risks, a summary of legal proceedings and financial statements. It is a quantitative and qualitative review. However, this document has its downsides, the most obvious of which is that it is backward-looking. Also, form 10-K can be overwhelming as the document often exceeds 100 pages in length. That said, in addition to other data investors gather on a company, form 10-K provides critical information investors need to assemble an investment puzzle. Find out how to break it down into information you can use.

Form 10-K: A Breakdown
Form 10-K has many different sections, called items, which are broken up into parts. Part I focuses on a description of the company and business. This section provides typically static information that is useful for any investor who requires a general understanding of the industry and company. It has various sections including business, risk factors and legal proceedings. Investors should review this section, even if they are familiar with the company or business, paying special attention to any changes in the language, particularly those related to risk factors and legal proceedings. The company also will typically provide an update to the competitiveness of the industry, including business trends and any other pertinent information that may affect market share and the company's ability to reach its goals. For example, new laws or regulations passed by the federal government that may impact the company's ability to operate the business would be included.

Part II focuses on the company's financial results of the operations. This includes the very important management discussion and analysis (MD&A). The MD&A informs the investor of management's explanation of financial results and the factors that impacted the past year. A summary of financial performance, discussion of acquisitions or divestitures and a comparative analysis of the current reporting year to the previous year and the previous year to two years earlier are listed here.

Part III focuses on corporate governance issues like executive compensation. Part IV contains exhibits, including the actual financial statements.

Where to Begin
Form 10-K can be found along with other SEC required forms and investor information on company websites, generally under an "investor" heading. In addition, the SEC publishes these documents on the Edgar website.

The best place for investors who are unfamiliar with a company or industry to start is at the beginning of the document, Part I, Item 1: Business. An industry overview is provided to give the investor a picture of the competitive landscape, the opportunities and the threats from a risk standpoint. Company-specific qualitative information is also discussed, including legal proceedings specific to the company as well as to the industry. Generally, a competitive analysis is also provided; typically the names of all competitors are discussed. Investors can compare the wording of the current 10-K to the wording of the previous 10-K, zoning in on any variations in tone to see if slight changes have occurred that may affect the future operating environment.

Once general knowledge of the industry and company is obtained, more company-specific information can be ascertained in Part II, the MD&A section. Company fundamentals, prospects for new businesses or products and risks as well as a comparison to the previous two years' financial outcomes are provided. In addition, business segment information is disclosed and discussed in this section. Often companies with either multinational operations or multi-segment businesses separate the operational results from the consolidated results so investors can analyze the growth drivers for the company. Reviewing results on a consolidated basis is useful, but understanding what drives the performance for the company via segment analysis augments an investor's ability to determine whether the investment could be fruitful in the future.

What's in the Numbers?
Form 10-K includes the annual financial statements - the balance sheet, income statement (statement of earnings), statement of retained earnings and statement of cash flows - for the current reporting year and up to the previous five years. This is a good opportunity to compare annual financial performance on a year-over-year basis. Often investors use a percent of revenue method to analyze the numbers. In addition, investors like to look at certain financial ratios to determine whether financial performance is improving or declining. The comparison across multiple years makes this information very beneficial. (Want to learn more about financial statements? Take a look at our Financial Statements Tutorial.)

Other 10-K Features
Form 10-K also includes the requirements of the Securities Exchange Act of 1934 and Sarbanes-Oxley regulation - the acknowledgment of management that they certify the results contained in the report. The auditors also provide an opinion based on their audit. Many investors pass over these exhibits, but they are an important outcome from legislation after several instances of fraud resulted in shareholder loss.

On the first page, the number of shares outstanding is listed as of the published date of the report. Investors will notice that this share count differs from the numbers used to calculate the earnings per share on the statement of earnings. The number of shares outstanding used in the statement of earnings is the average shares outstanding during the period, not the ending value.

Amendments
Form 10-K/A is compiled and filed when the company makes an amendment to the Form 10-K after it has been published. It is not an uncommon occurrence to file form 10-K/A. Investors should review these amendments to ensure that they do not materially change the investment thesis.

Conclusion
Form 10-K provides a comprehensive review of the industry and company, which should help investors form an investment thesis. Although it is an extremely lengthy document, investors will gain a valuable perspective by reviewing the information contained therein. Not only should new investors who are trying to understand a business examine the document, but current investors already familiar with the business should also review it to analyze any changes to the information reflecting changes in the business and operating environment; these may affect a company's ability to operate and grow.

For related reading, check out The Flow Of Company Information and Advanced Financial Statement Analysis.

Related Articles
  1. Investing News

    ABC's Madoff Miniseries Explores His Charm, Smarm

    An ABC miniseries on Ponzi scheme king Bernie Madoff gets inside the head of a man who was, in fact, not too big to fail.
  2. Career Education & Resources

    Laws & Regulations To Know Before Changing the Name of Your Business

    Discover some of the most important steps you need to take after making a decision to change your legally established business name.
  3. Personal Finance

    Passport Procrastinators: This Year, Renew Early!

    Millions of passports issued nearly 10 years ago when the Western Hemisphere Travel Initiative became law are expiring. Expect backlogs; leave extra time.
  4. Financial Advisor Technology

    Advisors: What to Know Before You Text

    Texting is becoming more popular between clients and financial professionals, but compliance can be tricky. Here's what to know before advisors text.
  5. Term

    Understanding Rule 144A

    Rule 144A is an SEC rule that changes the two-year holding period requirement on privately placed securities.
  6. Retirement

    Power of Attorney: When It's Critical to Get One

    "The sooner the better" is the usual answer.
  7. Markets

    Privateer Holdings Revolutionizes the Cannabis Industry

    Watch Privateer Holdings succeed by bringing more respectability to the legalized medical and recreational marijuana and industries.
  8. Your Practice

    How Likely is a New Fiduciary Rule in 2016?

    New fiduciary standards for advisors working with retirement accounts are on the horizon. Will they become reality in 2016?
  9. Forex

    Bitcoin's Main Stumbling Block: Navigating The Law

    Coders created Bitcoin to be decentralized and independent of governments and banks. Authorities are still struggling to create a legal framework.
  10. Investing Basics

    How to Dodge Brokers Using Smarmy Sales Tactics

    Many finance professionals use illegal, high-pressure sales tactics to sell bad securities to investors. Here's how to know if you're being swindled.
RELATED FAQS
  1. What is the Writ of Mandamus?

    A writ of mandamus is a court order issued by a judge at a petitioner’s request compelling someone to execute a duty he is ... Read Full Answer >>
  2. Are UTMA accounts escheatable?

    Like most financial assets held by institutions such as banks and investment firms, UTMA accounts can be escheated by state ... Read Full Answer >>
  3. What is the SEC's escheatment process?

    The U.S. Securities and Exchange Commission (SEC) does not have its own escheatment process. Rather, the SEC notes that the ... Read Full Answer >>
  4. Can the IRS audit you after a refund?

    The U.S. Internal Revenue Service (IRS) can audit tax returns even after it has issued a tax refund to a taxpayer. According ... Read Full Answer >>
  5. How does escheatment impact a company?

    In recent years, state governments have become increasingly aggressive in enforcing escheatment laws. As a result, many businesses ... Read Full Answer >>
  6. What happens if property is wrongfully escheated?

    If your financial accounts, such as bank, investment or savings accounts, are declared dormant and the managing financial ... Read Full Answer >>
Hot Definitions
  1. Discouraged Worker

    A person who is eligible for employment and is able to work, but is currently unemployed and has not attempted to find employment ...
  2. Ponzimonium

    After Bernard Madoff's $65 billion Ponzi scheme was revealed, many new (smaller-scale) Ponzi schemers became exposed. Ponzimonium ...
  3. Quarterly Earnings Report

    A quarterly filing made by public companies to report their performance. Included in earnings reports are items such as net ...
  4. Dark Pool Liquidity

    The trading volume created by institutional orders that are unavailable to the public. The bulk of dark pool liquidity is ...
  5. Godfather Offer

    An irrefutable takeover offer made to a target company by an acquiring company. Typically, the acquisition price's premium ...
Trading Center