Form 10 K Definition How To Analyze Sec 10 K Edgar Filing

Form 10-K Definition

Form 10-K is filed in the United States by publicly traded companies with a detailed statement of the company’s annual financial performance. It is a necessary form to be filed with the Securities Exchange Commission (SEC) within 60 days of the fiscal year-endFiscal Year-endFiscal Year (FY) is referred to as a period lasting for twelve months and is used for budgeting, account keeping and all the other financial reporting for industries. Some of the most commonly used Fiscal Years by businesses all over the world are: 1st January to 31st December, 1st April to 31st March, 1st July to 30th June and 1st October to 30th Septemberread more.

This form is prepared much more in detail than the company’s annual report, which is generally treated as a Bible for the investors and other third parties. It is only applicable to the companies listed on the various stock exchange indexes of the United States.

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Top 5 Information to Look for in Form 10-K SEC Filing

The objective of this filing is to provide the shareholders with accurate and relevant information about the company to make successful investment decisions. Below are the top 5 most important sections in Form 10-K.

#1 – Business

This section discusses the core trade of the company, how it makes money, where it operates, and the overall vision and mission statements. This section is vital, especially for new analysts/investors who want to learn more about the company.

#2 – Risk factors and Business Overview

Companies must also disclose the various systematic and unsystematic risk factorsUnsystematic Risk FactorsUnsystematic risk refers to risk that is generated in a specific company or industry and may not be applicable to other industries or the economy as a whole. There are two types of unsystematic risk: business risk and financial risk.read more that affect the business. The company announces the potential threats it is opposed to and faces the competition. Also, the company provides an overview of the business and the new acquisitions it has made.

#3 – Financial Statements and Footnotes

This section includes the audited company’s financial statements and its performance compared with the previous quarter or the same quarter of the last year. The audit financial statements include a balance sheetBalance SheetA balance sheet is one of the financial statements of a company that presents the shareholders’ equity, liabilities, and assets of the company at a specific point in time. It is based on the accounting equation that states that the sum of the total liabilities and the owner’s capital equals the total assets of the company.read more, income statementsIncome StatementsThe income statement is one of the company’s financial reports that summarizes all of the company’s revenues and expenses over time in order to determine the company’s profit or loss and measure its business activity over time based on user requirements.read more, statement of cash flowStatement Of Cash FlowA Statement of Cash Flow is an accounting document that tracks the incoming and outgoing cash and cash equivalents from a business.read more, and statement of other comprehensive incomeOther Comprehensive IncomeOther comprehensive income refers to income, expenses, revenue, or loss not being realized while preparing the company’s financial statements during an accounting period. Thus, it is excluded and shown after the net income.read more. The section also consists of footnotes to support the three primary accounts.

#4 – Management Discussion and Analysis

This MD&A section tells the story of the company’s current financial performances, plans, and vision. It also provides a comparison of the results against the past quarter. This section also contains words from the company’s board and its vision of how it will perform in the future.

#5 – Audit Opinion

In this section, the critical details of the auditor’s opinionAuditor’s OpinionAn auditor’s opinion is a statement presented by an independent auditor revealing the authenticity of a company’s financial statements.read more (qualified or Unqualified OpinionUnqualified OpinionAn unqualified opinion is concluded by an auditor appointed by the company after making substantial procedures to check the policies and procedures in place and collected optimum evidence that the organization does not include any material discrepancies or misstatements.read more) regarding the financial statements. It also confirms if they were prepared as per the accounting policiesAccounting PoliciesAccounting policies refer to the framework or procedure followed by the management for bookkeeping and preparation of the financial statements. It involves accounting methods and practices determined at the corporate level.read more and guidelines.

Advantages

Form 10-K has the following advantages: –

It is a source of information about the company for the shareholders and the investors, making it an essential document for investment decisions.It contains vital information about the company and tells the analyst the plans and the strategic initiatives the company will take in the future.It is also used for valuation purposes and the company’s financial projectionsFinancial ProjectionsFinancial projection is a statistical forecast of a company’s future revenue and expenditure based on historical market patterns, internal factors, data interpretation, anticipated market developments, and experiences. To meet production or sales targets, both short-term and long-term financial estimates are sometimes evaluated.read more.

Disadvantages

Form 10-K has the following disadvantages: –

Because of the requirement and the filing criteria, Form 10-K tends to be very long and complicated. Still, investors need to understand that this is the most comprehensive public document available.Public information has a disadvantage too. There is a threat of takeover as the company discloses the public shareholding of every director and the compensation of the senior executive director.Form 10-K needs to be filled quarterly, including compliance and cost. The form is usually unaudited, so it does not prove to be a good source to undertake an investment decision.

Conclusion

Typically, a company needs to file both annual reports and Form 10-K in a single pager document with the annual report starting from the overview of the company financial statements Financial StatementsFinancial statements are written reports prepared by a company’s management to present the company’s financial affairs over a given period (quarter, six monthly or yearly). These statements, which include the Balance Sheet, Income Statement, Cash Flows, and Shareholders Equity Statement, must be prepared in accordance with prescribed and standardized accounting standards to ensure uniformity in reporting at all levels.read more. A good analyst should read and analyze both documents in-depth and make investment decisions accordingly. In addition, an analyst should carefully examine the risk factors both within and outside the business environment to understand the business correctly.