You need to get your hands on a company's balance sheet if you want to figure out how much it's worth. This report is typically found in the company's most recent annual report, Form 10-K, and Form 10-Q filings. Each document has a different purpose and provides additional information about the company.
What's the Difference Between a 10-Q, 10-K, and Annual Report?
| 10-Q | 10-K | Annual Report | |
| Filing Frequency | Quarterly for Q1–Q3 | Annually | Annually |
| Detail Orientation | Unaudited financial statements, less detail | Financial statements that are extremely detailed and have been audited | A polished look at what the 10-K has to offer. |
| Large Accelerated Filers (float >=$700MM) Due Date | 40 days | 60 days | 10-K has been filed. |
| Accelerated Filers ($75MM–$700MM float) due date | 40 days | 75 days | Filed with 10-K |
| Non-Accelerated Filers ($75MM float) Due Date | 45 days | 90 days | Filed with 10-K |
| Purpose | Provides a year-round view of the company's financial position. | Provides a comprehensive overview of a company's financial situation. | Provides a more concise and easy-to-understand view of a company's finances than the 10-K. |
10-Q form
The 10-Q is similar to the 10-K but only covers a quarter of financial data. Due to the short measurement period, it contains far less detail than the 10-K. It can be very helpful from time to time if you're looking for short-term changes in a company. The Form 10-Q can provide insight into changes within a company long before they show up in the earnings figures. You might notice, for example, that inventory turnover is improving (or worsening) or that accounts receivable turnover are improving. Because collections are slow, you may notice warning signs that your customers have a credit problem. Working capital fluctuations, lawsuits, and other legal risks for which cash reserves have not yet been established may be mentioned. Note: The amount of time a company has to file its 10-K or 10-Q is determined by the size of its public float, which is the value of its common shares not held by its affiliates.10-K Form
The Form 10-K is an annual report that publicly traded companies must file with the Securities and Exchange Commission (SEC) after the end of their fiscal year. Although the 10-K is an annual report, it does not look or read like one. Instead, it contains all of the data from the previous year, which can take days to sort through. It covers everything from the company's revenue source to the maturity schedule of its issued bonds. Only facts, figures, and decisions are presented, with no pictures or flowery letters from the CEO. In addition to any accounting procedures that are required by law, the 10-K discusses any accounting procedures that the company uses. The 10-K is a difficult read for some people. It is invaluable if you are interested in finance and enjoy crunching numbers. The 10-Ks of truly complex businesses can be hundreds of pages long. Tip: You might come across a company that doesn't have any financial statements or other disclosures in its Form 10-K. Instead, it could have a clause that says something like "incorporated herein by reference." It indicates that the data has been made public elsewhere, such as in the annual report, and you should look for it there.Report Annually
Several months after the fiscal year ends, a publicly traded company distributes its annual report to its shareholders. It almost has everything you need to know about the company. This could be more distinct from the annual report filed with the Securities and Exchange Commission (SEC) on Form 10-K. The annual report is sent to shareholders before the company's annual meeting. It must also be made available on the firm's website. A letter from the CEO discussing the company's performance is typically included in an annual report. It usually aligns their expectations for the coming year and reiterates the company's vision and values. In the majority of annual reports, there are a number of documents, footnotes, charts, and reports that are hidden away and that you should read in order to get a complete picture of the company. You should have access to a company's annual report even if you're not a shareholder. On the company's website, go to the investor relations link. You should be able to save the report as a PDF file from there. A publicly traded company must also file a Form 8-K to notify the Securities and Exchange Commission (SEC) and shareholders of any event that may have an impact on the stock price. Obtain information directly from the source. Financial data from a company can be found on portals like MarketWatch or Yahoo! Finance, but it's best to go straight to the company report itself because data that's been passed on to third parties can contain errors. The information available on these websites is far too limited. By looking at a firm's beta, stock price, and price history, you can't build any context or figure out what's going on. Reading the annual report, 10-K, or 10-Q for yourself is critical because these websites may omit information. Consider AIG before the Great Recession of 2008 and 2009. After losing billions in the aftermath of the financial crisis, the company received a massive government bailout. If you had read the annual report carefully, you would have been terrified by the exposure to subprime mortgage derivatives and swaps. The financial sites didn't show this; they only showed rising net income, increasing assets, and increasing cash flow. It's important to remember that when you buy a stock, you're purchasing ownership in a company. If you invest in bonds, you're lending money to a company. No shortcuts are available. To collect dividends and interest payments, you must put in the effort and be aware of the risk you are taking.Comparing 10-Qs, 10-Ks, and Reports from Different Companies
When comparing companies, these forms are extremely helpful. If you want to learn about a company's strengths and weaknesses, make sure to request annual reports, 10-Ks, and 10-Qs from competitors. If you study all of the oil majors at the same time, for example, you will be able to understand an oil major better. You can look over the statements and see what's different. You'll notice that companies have a variety of capital structures. You could look at the DuPont ROE variables to see what is causing the returns to be so high. Looking at indicators like the trend in sales per square foot and interest coverage ratios can also help you predict which companies will succeed. If one company explains a new accounting rule that will significantly alter how it reports results, and another only skims over it, you should be suspicious of the latter. Similarly, one company may point out an opportunity that the industry faces, while a more conservative firm reports only on its results for the most recent period. Because you have more information, the former company appears to be the better investment at the time.Final Thoughts
Learning to read and evaluate 10-Qs, 10-Ks, and annual reports is an important skill to develop if you plan to invest in stocks or bonds. Investors who are well-informed are more likely to be successful, so review these important documents as soon as they are available.Important Points to Remember
- Form 10-Q filings are made on a quarterly basis and contain far less information than Form 10-K filings.
- Annual reports filed with the Securities and Exchange Commission, known as Form 10-K filings, contain mountains of financial data.
- Once a year, annual reports are sent to shareholders, and they usually contain almost everything you need to know about the company.
- Financial websites may provide copies of these reports, but obtaining them directly from the company is preferable.
