6-01 Information: 10-Ks, 10-Qs, and 8-Ks

In previous chapters we talked about IPOs and what it takes to be a public company in the U.S. To remain a public company in good standing with the Securities and Exchange Commission (SEC), after its IPO a company must “file” certain information on a quarterly and annual basis. The SEC then makes this information available to the public so that all investors have a level playing field and have access to the same information at the same time.

Here are the 3 most frequently filed documents with the SEC:

• 10-K The annual SEC filing by public companies that includes their audited Income Statement, Balance Sheet, Cash Flow Statement and other detailed notes about the companies financial and operating conditions. – this is the annual report that is filed by a public company with the SEC. This is an extremely in-depth document that contains lots of information including a description of the business, audited financial statements for the company’s most recent fiscal year (income statement, balance sheet, cash flow statements, and a statement of shareholder equity), executive compensation, a description of the company’s option plan, future commitments for leases, a review of any legal issues pending, and much more. An independent accounting firm confirms that the information presented is accurate by auditing the financial statements. A 10-K must be filed within 75 days of the company’s fiscal year end.
• 10-Q The quarterly SEC filing by public companies that include abbreviated, unaudited financial statements. – this is a company’s quarterly report that is filed with the SEC. The 10-Q is less detailed than the 10-K, but it gives you a snapshot of its financial statements so you can see how the company has performed in the most recent 90-day period. These financial statements are generally unaudited. Companies are required to file their 10-Q within 45 days of the end of their quarter.
• 8-K – this form informs company shareholders of “unscheduled material events that are important to shareholders”. This would include the resignation of an officer of the company, a major purchase or business deal the company has made, and even bad news like an SEC investigation into the company’s business practices. These are all material events that would require an 8-K to be filed. The 8-K is extremely common, and many companies will file a number of 8-K’s throughout the year.

When you start reading a company’s SEC filings, you will notice that they are boring, dry and full of legalese. But they are supposed to be that way because they are full of objective FACTS about the company, and FACTS are what you need to evaluate a company’s prospect for success. The SEC filings deliver the pure information about a company, unblemished by brokerage analysis.

Mark's Tip

I always like to read the latest 10-K report first to see how the company has performed over its latest fiscal year, and more importantly, how that performance compared to their previous 12 months. Then I look for the most recent 10-Qs and compare the sales growth, profit margin percentage, and net income. I hope to see trends established in the 10-K continuing in the 10-Qs.

You can find out almost everything that you ever wanted to know about a company just by skimming through the pages of their quarterly or annual reports. Are their sales increasing or decreasing? Is their profit margin growing or shrinking? How much cash do they have on hand? How much debt do they have? How are their European operations progressing? What kind of compensation package does the CEO of the company have? Who are the officers and VPs of the company? What is the company’s dividend policy? It’s all in there.

Most companies will also prepare an “Annual Report” and distribute it to their shareholders. It is this Annual Report which often contains the “glitz” and positive “spins” on the company’s performance. While smartly constructed and well-written, you should learn to separate the prose in the Annual Report from the true financial and operational performance as exhibited in their 10-Q and 10-K SEC filings.

Money Watch SEC Filings

Mark's Tip

Notice that I said the company prepares an Annual Report and distributes it directly to the shareholders. The Annual Report is NOT filed with the SEC and therefore has less objective information. While the Annual Report is usually attractive and enjoyable to read, there will be little valuable information in the Annual Report that is NOT in the SEC filings.