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 10-K SEC filing 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
The objective of form 10-K 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 very important 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 factors 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 previous year. The audit financial statements include a balance sheet, income statements, statement of cash flow and statement of other comprehensive income. The section also includes the footnotes to support the main three accounts.
#4 – Management Discussion and Analysis
This MD&A section tells the story of the company present financial performance, future plans, and vision and 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 key details of the auditor’s opinion (Qualified or Unqualified Opinion) regarding the financial statements. It also confirms if they were prepared as per the accounting policies 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 projections 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 disadvantage and the threat of takeover from the public shareholder as the company disclose 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 on a quarterly basis and has their own 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 report and the Form 10-K in a single pager document with the annual report starting from the overview of the company’s financial statements. 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 is both within and outside the business environment in order to understand the business correctly.
This has been a Guide to Form 10-K 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 –