The Securities and Exchange Commission (SEC) requires publicly traded companies in the U.S. to file an annual report following the outline provided on Form 10-K. These reports offer a comprehensive snapshot of a company's business and financial metrics, and they are part of the SEC's disclosure requirements to ensure investors have adequate information when making decisions to buy or sell securities.
What is Form 10-K?
Definition and overview
Technically, Form 10-K refers to a specific document that the SEC requires public companies to follow in order to create an annual report that gets filed with the SEC and shared publicly.
In practice, a 10-K is generally synonymous with a company's annual report, which tells you how well a business performed during the fiscal year.
"It is the story of their business operations over the past 12 months," says Glenn Davis, principal emeritus, risk advisory services at Kaufman Rossin.
For anyone interested in investing in a company, a 10-K can be a powerful tool for understanding the risks, opportunities, and the viability of an organization.
In the 10-K, investors can find an overview of the company's business practices, financial data, and operating results from the past year, risks the organization is facing, and discussion from management about their perspective on the organization, among many other topics.
"The SEC requires different things you must disclose," says Adam Finerman, partner, co-leader of the IPOs and securities offerings team, and the capital markets and securities/corporate governance team at Baker Hostetler. For this reason, all 10-Ks follow the same structure based on the SEC's form.
10-Ks can be extremely long, sometimes hundreds of pages. However, not everything is going to be relevant to individual investors. For example, as Davis explains, the form contains a section about mine safety disclosures, which, unless you're looking into a mining company, is probably not going to be relevant.
These documents do have quite a bit of overlap with a company's annual report to shareholders, which is also required when a public company is electing directors to its board. But 10-Ks tend to provide more detailed information. Some companies will even use their 10-K as their annual report to shareholders.
It's also important to remember that 10-Ks are written by companies. While the SEC monitors the filings, and certain areas, like audited financial statements, include third-party review, not everything in them comes from a completely objective, outside perspective.
Note: Form 10-Qs are similar to 10-Ks, but 10-Qs are filed each quarter.
Key components of Form 10-K
Form 10-Ks are divided into four main parts. If you want, you can read the whole document cover to cover, but it's usually not necessary. Instead, experts suggest going over the following sections.
Business
Found in Part I, this section is full of qualitative analysis of the business itself. "In brief, it tells you: 'This is what we do,'" Finerman explains. The section may note the company's goals, its history, and position in the marketplace.
Understanding exactly how a business operates can be crucial in adding context to the rest of the document. For example, it wouldn't be an immediate area of concern to read that a hotel lost money or had low profits during the pandemic in 2020. On the other hand, if a company that makes surgical masks experienced financial problems in 2020, that might raise some red flags. So knowing what the business offers and how it works will be integral to interpreting other sections of the document correctly.
Risk factors
Form 10-K risk factors are described immediately after the business section. This part of the document describes any risks the company may be facing that investors should know about, but it doesn't necessarily cover risk management approaches. According to Finerman, this section can be very long on its own. However, the general rule is that the risk factors go in order of importance.
"The challenge with the risk factors is that they are addressing the known risks," Davis explains. For example, five years ago, most companies weren't writing about a potential pandemic. The goal is to give as complete a picture as possible, but not everything can be predicted.
Legal proceedings
Toward the end of Part I, a company will include a section detailing its current legal proceedings.
"In America, litigation exists," Finerman says, "I wouldn't be unduly alarmed by the existence of ongoing litigation." Instead, make sure there aren't any glaring patterns, things like multiple workplace safety violations, sexual harassment suits, or anything that seems unusual for a business of the type you're looking at.
Management's discussion and analysis of financial condition and results of operations (MD&A)
In Part II of the 10-K, you'll want to make note of the management's discussion and analysis (MD&A). Here, management discusses its perspective on business results over the past 12 months. This section gives the people running the company the ability to tell their own story about what happened over the last year, which could give you more context to the financial data.
"Usually they're comparing it to a prior period," Davis says. Management may also discuss risks in more detail and provide an explanation for how the organization is addressing them.
Financial statements and supplementary data
This section, also in Part II of a 10-K, contains the audited financial statements produced by a company. It contains the organization's balance sheet, income statement (which sometimes goes by other names like statement of earnings or statement of operations), statement of stockholders' equity and statement of cash flows. These documents are often used to evaluate a business's health. Typically, they include three to five years' worth of comparisons.
"You want to see consistency of earnings. You want to see consistently high gross margins," Davis says. Taking it a step further, you could also compare competitors' financial data. Any company that is consistently beating its competition may be one worth exploring further.
Executive compensation
This section in Part III gives investors an inside look at a company's executive compensation practices, including what it paid its top executives in the last year and information on the organization's pay policies.
Other sections
Other parts that are often worth looking into vary based on your perspective, but some common ones include the "controls and procedures" and "changes in and disagreements with accountants on accounting and financial disclosure" sections.
The first includes information about the way the company is meeting objectives for reliable financial reporting, among other things. The second includes any disclosures about changes and disagreements a company has had with accountants. According to the SEC, "many investors see this disclosure as a red flag."
Note: Form 10-Ks are written in plain language, making them easier to understand for first-time readers.
How to Read Form 10-K
Tips for navigating the document
When reading a 10-K, keep in mind that it comes from the perspective of the company creating the report. Certain areas, like the 10-K Business section and Form 10-K Risk Factors, contain a lot of subjective views.
Plus, much of the information in a 10-K is based on what has happened in the past, although there are some forward-looking statements.
"It's a memoir, written by the people who want to tell you the story in a certain way," Davis says.
This isn't to say that the information contained in the 10-K is likely to be false. The law prohibits that. It's just important to understand the point of view from which it was written when you're considering investing your money.
The SEC also publishes helpful information for investors, like this Investor Bulletin on how to read a 10-K.
Where to find a company's Form 10-K
If you're looking for a 10-K example, you can easily view real reports to see what they typically include.
All 10-Ks are publicly available, and investors can find them in a number of places. Many companies include them in the investor relations section of their website, so you might find that section via a company's homepage or seek that out via a search engine.
10-Ks are also available in the SEC's EDGAR database. You can search by company name or ticker symbol. Once you've found the company you're looking for, EDGAR shows search results in chronological order and identifies the filing by form type.
10-K filing deadlines
Filing deadlines for 10-Ks depend on a company's size.
Organizations are categorized into three groups to determine their filing date: large accelerated filers, accelerated filers, and non-accelerated filers. Though there are various conditions to be met for each category, generally it depends on the amount of stock a company has issued for public trading, known as its public float.
Large accelerated filers have a public float of $700 million or more and are required to file within 60 days of the end of their fiscal year. Companies with a public float between $75 million and less than $700 million are considered accelerated filers and get 75 days. Those with a public float less than $75 million are required to file within 90 days of their fiscal year-end and are considered non-accelerated filers.
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Form 10-K FAQs
Can Form 10-K predict the future performance of a company?
Form 10-Ks cannot predict the future, but they do include substantial information on companies and forward-looking statements, which investors might use to form hypotheses about future performance.
What should I pay attention to in the Risk Factors section?
This section lists the principal risks facing a business, which could include risks unique to that organization or broader developments affecting the entire economy. This section is crucial to consider holistically, since it contains information that could easily affect the company's future financial performance. That said, see if companies specify which risks they think are more significant than others.
What is Form 10-K used for?
A Form 10-K is an SEC document that publicly traded companies in the U.S. are required to prepare and file, which effectively creates an annual report. This report is used to share key information with investors, such as audited financial statements and a company's disclosure of its main areas of business and risk factors.
Who must receive Form 10-K?
A Form 10-K must be completed by all publicly traded companies in the U.S. so that shareholders or anyone in the general public can access this information if they choose to do so. All filings are publicly available online via the SEC's EDGAR database.
Who writes a company's 10-K?
Writing a 10-K typically involves input from multiple departments within an organization. The investor relations team might take the lead, but there is likely input from management, finance, and also external groups like a third-party auditor. The SEC does not write or verify a company's 10-K; it just requires them to be filed.
