Why You Should Look for a Form 10k

As a new investor, knowing what companies to pick to put your hard-earned money into is a pretty important decision. When you invest in a stock, you are investing in a company. Understanding the risk of that investment can be done by doing a deep dive into the form 10K of a company.

This Blog post is part one of a series of getting you to understand what is a form 10K and giving you the tools how to understand and read the form.

What is Form 10K?

Form 10K reveals the financial standing of a company and provides information on the assets and liabilities of the Company. A 10K filing is required annually by the U.S Securities and Exchange Commission (“SEC”) for publicly traded companies. The SEC requires that Companies give information on the organizational structure, financial statements, earnings per share, subsidiaries of the Company, executive compensation, and any other relevant data. The 10K normally has more information than a Company’s annual report. The 10K gives prospective investors a detailed and comprehensive look into a Company that the investor wishes to buy shares.

Understanding the 10K

Form 10K is divided into approximately five (5) sections

1. Overview of the business of the Company. This section in certain instances will give you a history of the company and how well the company has performed throughout its history. This section will also give you an overview on the sector the company operates in and information on its operations and subsidiaries. You will generally find here how the company intends to make its money and how it makes its money.
   

2. What Risk factors the Company is exposed to- These outline any and all risks the company faces or may face in the future. The risks are typically listed in order of importance. However, it is important to read the risks to the end. What the company deems not important may be important to you in relation to risks!
   

3. The selected financial data-This section provides a short-term analysis of the Company’s financial performance. You may find information on the liabilities and assets of the company here on a short-term basis.
   

4. Management’s discussion and analysis of financial condition and results of operations. This section is where you will find a company giving investors the details of the company through management’s eyes.
   

5. Financial statements and supplementary data. This includes the company’s audited financial statements including the income statement, balance sheets, and statement of cash flows. A letter from the company’s independent auditor certifying the scope of their review is also included in this section. You will also find the liabilities and assets of the company here.

The 10K form of a company is a vital use of the fundamentals of the company to make a sound investment decision. We’ll end the blog here and stay tuned for part two where we will discuss the terms that you will come across when you read a 10k.

Stay Educated!