Important things to look for in a company's 10K & 10Q

First of all what are they?

10K’s & 10Q’s are documents that the SEC requires that each and every publicly-traded company file at the end of their fiscal year and at the end of every quarter. They are sometimes referred to as Annual and Quarterly reports. These are available on the SEC’s website as well as the company’s own website. 

Why read them?

There is a lot of information about a company to had in these reports. If you are researching a stock you are considering to buy you can find out the nature of their business, how many employees they have, the amount of shares outstanding as well as the amount of shares authorized.

Item 1: Business

This section introduces the reader to the company, its business, and industry. It’s an important section to read if you’re thinking about investing in a stock, as it will outline the history of the company, any recent developments, and give an overview of the industry and its competitors as well.

10-Qs (quarterly reports) will contain an abbreviated version of this, so to get the most information on a company, it’s best to start with its 10-K.

Item 3: Legal Proceedings

You’ll also want to know if the company you’re thinking of investing in is currently under any serious litigation. The SEC requires companies to disclose their estimated liability amounts if they face an adverse ruling if they feel that outcome is likely or the amount is significant.

Item 7: Management’s Discussion and Analysis

This is one of the key parts of the 10-K and well worth reading if you read nothing else. Here, management discusses and compares past and present results, and what they expect for the future.

Also here usually toward the end, will be a section called “Liquidity and Capital Resources”. It should discuss how management plans to raise money for its future plans. For example, if the company plans on acquiring other companies or opening new plants, do they have sufficient funding to do so? If not, are they planning on issuing more debt? Or selling more shares of stock? How strong is their financial position?

It is very important to investigate for possible new financings that can affect the amount of shares outstanding as a dilution could drastically affect share value.

Pay careful attention to the amount of shares authorized and the amount issued and outstanding.


 Item 8: Financial Statements

Here you will find the company’s Income Statement, Balance Sheet, and Cash Flow Statement, or information on where they are located in the document. These three financial statements comprise the bulk of information on how the company has performed.

This section will show if they are even in business.

 Often the interesting thing is what’s changed from what they used to say or what is no longer being said.  And that can be hard to figure out. Compare the current report to the 10K from the previous year and what is not there now, but should be, or what has been subtly changed, is a much more difficult thing to see.

So you sometimes have to layout the current years report next to last years report in order to get some insight into what the company may not be saying and how they view their disclosure obligations.


 Important points:

  • Do read Quarterly and Annual Reports
  • Note the nature of the business
  • Note the share structure
  • Look for legal proceedings
  • Look for new financings that affect share structure

Check the financials – no financials means no business.