DEFINITION

The annual business disclosure report known as the Form 10-K is a document that all publicly traded companies are required by law to file with the Securities and Exchange Commission and make available to investors.

The Form 10-K, Defined, Along with Some Examples

Publicly traded companies are required to submit an annual business disclosure report known as a Form 10-K to the Securities and Exchange Commission (SEC). Before buying or selling the company's stock or investing in the company's corporate bonds, an investor will find nearly all of the information about the company that they could want to be contained in this document. These are the following:

Revenues
Changes in management
Concerning areas and the level of competition
Existing methods and procedures
Future plans

In addition to the information that you are required to include in a 10-K, you are also obligated to include any other pertinent information that elucidates the mandatory information and ensures that no sections of the report contain information that could be construed as being misleading. The most important component of the Form 10-K filing is the financial statements, which include the income statement, the balance sheet, and any other statements that detail how much money a company made, how much debt it had, and any other relevant information. When taken together, they provide insight into the current state of a company's financial situation. The documents are available for no cost and can be downloaded online from the websites of companies as well as public databases like EDGAR that are maintained by the SEC.

Who Needs to Fill Out a Form 10-K?

Public companies are required to submit a Form 10-K. Investors and potential investors will use it once it has been filed with the appropriate authorities. It gives them the opportunity to investigate the particular processes by which a company operates and generates revenue. In addition to this, it details the locations where the company conducts its business as well as the threats and challenges it faces, such as any pending or active legal actions. Due to the availability of this information, investors are now able to make educated decisions regarding whether or not they should trade or own stock in the company.

Advantages of Having a Form 10-K

Investors receive a significant benefit from a Form 10-K because it reveals information about a company's financial health that is often difficult to obtain from any other source. The way that current accounting rules are written makes it possible for management to avoid setting aside any reserves at all if they are unable to make an accurate prediction of the potential harm that could be caused by a particular risk. This indicates that the risk is not reflected in the company's financial statements in any way. The rules of accounting prevent many types of debt from being reflected on a company's balance sheet, which can lead to the bankruptcy of a business. However, the payments must be disclosed in accordance with the law when the Form 10-K is submitted. Imagine you had no financial obligations and owned a modest clothing store in a nearby shopping mall. You entered into a lease agreement with the owner of the shopping centre, which stipulated a monthly rent payment of $10,000. You might have been required to disclose very little or even no debt on your balance sheet if the guidelines that dictated how financial information had to be presented prior to 2016 had been followed. Companies are now required to disclose their lease liabilities in accordance with updated accounting standards. If your company experiences a drop in revenue and you stop sending rent checks to the landlord as a result of this, the owner of the mall in which you have a storefront may evict you and force your business into bankruptcy as a result of the missed lease payment. These obligations are also disclosed in some part of the Form 10-K, most frequently within a section that is either titled "operating leases," "fixed payments," or "minimum cash payments due." The Form 10-K contains a number of important parts that, when combined, supply investors with essential information.

Accounting Standards, Procedures, and Policies

Imagine for a moment that you are thinking about investing in the stock of a company that makes washing machines. The company is all of a sudden featured in the top stories on national news outlets because thousands of models are failing beyond the point of repair. Is the company obligated to take them back from the customers if they are returned? When submitting its Form 10-K, a company is required to disclose its warranty policies as well as an estimate of the costs associated with providing warranties for products that it sells or manufactures.

Letters Personally Signed by the CEO and CFO

Both the Chief Executive Officer and Chief Financial Officer are required to submit signed letters affirming under oath that the company's books are accurate to the best of their knowledge. The government can use these letters as evidence in court cases against executives who intentionally lied on their Form 10-K or in other disclosures that were required of them. NOTE: After the accounting frauds that occurred in the wake of the dot-com bust and when WorldCom and Enron dominated the headlines, the requirement for signed letters became standard practise.

Message From the Auditor Responsible for Independent Auditing

This letter should provide specifics regarding the scope of the auditing firm's certification of the financial records, as well as any significant shortcomings that the firm discovered. You might find the auditor referring to a question about the company's ability to "continue as a going concern" or something along those lines if the auditor has reason to believe that the business could fail in the near future. Should you ever come across something similar to those words, you should immediately be on high alert.

Different Options to the Form 10-K

A filing made on a Form 10-Q is a condensed version of the company's Form 10-K filing. At the conclusion of each fiscal quarter, a report in the form of a 10-Q must be submitted to the SEC. In addition, investors can access it through the EDGAR database and the website of the company.

Key Takeaways

A Form 10-K is the name of the annual report that is required to be submitted to the Securities and Exchange Commission by all publicly traded companies.
It provides investors with a comprehensive picture of a company's financial situation and can also highlight potential risks for the company's future.
Form 10-K can be downloaded for free from the website of a company as well as the EDGAR database of public filings maintained by the SEC.
Form 10-Q is a condensed version that must be submitted once every three months.