Form 10-K Definition
Form 10-K is filed in the United States of America by publicly traded companies with a detailed statement of the company’s annual financial performance which is a necessary form to be filed with the securities exchange commission (SEC) within 60 days of the fiscal year-end.
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 which are listed on the various stock exchange indexes of the United States of America.
Top 5 Information to Look for in Form 10-K SEC Filing
The objective of this filing is to provide the shareholders with accurate information and relevant information about the company so they can make successful investment decisions. Below are the top 5 most important sections in Form 10-K
#1 – Business
This section discusses the core business of the company, how it makes money, where does it operate, and the overall vision and mission statement of the company. This section is vital, especially for new analysts/investors who want to learn more about the company.
#2 – Risk factors and Business Overview
Companies are also required to 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. that affect the business. The company discloses the potential threats that it is opposed to and the competition it is facing. 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., 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., statement of cash flowStatement Of Cash FlowStatement of Cash flow is a statement in financial accounting which reports the details about the cash generated and the cash outflow of the company during a particular accounting period under consideration from the different activities i.e., operating activities, investing activities and financing activities., 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.. The section also consists of the footnotes to support the three main accounts.
#4 – Management Discussion and Analysis
This MD&A section tells the story of the company present financial performance, future plans, and vision. Also, it provides a comparison of its results against the past quarter or the past period. The section also contains words from the board of the company and their vision of how the company is going to perform in future
#5 – Audit Opinion
In this section, the critical details of the auditor’s opinion (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.) 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. and guidelines.
Form 10-K has the following advantages: –
- Form 10-K is a source of information about the company for the shareholders and the investors, which makes it a document for investment decision
- Form 10-K contains vital information about the company, and it also tells the analyst the future plans and the strategic initiatives which the company is going to take in the future
- Form 10-K is also used for valuation purposes and also for 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. of the company
Form 10-K has the following disadvantages: –
- Because of the requirement and the filing criteria, Form 10-K tend to be very long and complicated in nature, but investors need to understand that this is the most comprehensive public document which is available in the public domain
- Public information also has a disadvantage, and the threat of takeover from the public shareholder as the company discloses the public shareholding of every director also the compensation of the senior executive director is also disclosed
- The form 10-K needs to be filled quarterly and has their compliance and cost to be filled, and the form is usually unaudited, so it does not prove to be a good source of investment decision
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’s 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.. A good analyst should read and analyze both the document in-depth and make his investment decisions in the light of the same. An analyst should carefully analyze the risk factors which are both within and outside the business environment to understand the business correctly.
This article has been a Guide to Form 10-K Edgar Filing and its definition. Here we the top 5 company information to look for in Form 10-K (business, risk, financials, audit opinion, MD&A) along with examples, benefits, and disadvantages. You may learn more about Investment banking from the following articles –