When analyzing a company to determine its value, you need to obtain its financial statement. This statement is usually found in the company’s latest annual report, the 10-K filing, and the 10-Q filing. Each document serves a different purpose and provides different insights about the business.
What are the differences between 10-Q, 10-K, and the annual report?
10-Q 10-K Annual Report
Filing frequency: The 10-Q form is filed quarterly with the U.S. Securities and Exchange Commission (SEC) after the first three quarters of the year. The 10-K form and the annual report are filed once a year after the fiscal year ends.
Level of detail: While the 10-Q form provides a quick, unaudited view of the company’s financial information, the 10-K form addresses every aspect of the company’s position and is based on audited data. The annual report provides a summarized and structured overview of what is in the 10-K form.
Due date: The due dates for 10-Q forms range from 40 to 45 days after the end of the quarter. Annual reports and 10-K forms are typically filed together between 60 and 90 days after the end of the fiscal year, depending on the size of the company.
The 10-Q Form
The 10-Q form is like the 10-K form, but it only covers financial data for a quarter. It contains less detail than the 10-K form due to the shorter measurement period. It can be very useful occasionally if you are looking for short-term changes in the company.
The 10-Q form can provide insight into changes within the company before those changes manifest in the financial numbers. For example, you might see that inventory turnover is improving (or deteriorating) or that the accounts receivable collection period is getting better. You might even see warning signs that there are credit issues with customers, as collections are slow. Changes in working capital, lawsuits, and other legal risks that have not yet been allocated cash reserves may be mentioned.
The 10-K Form
The 10-K form is an annual report that publicly traded companies must file with the U.S. Securities and Exchange Commission after the fiscal year ends.
The 10-K form is an annual report, but it is not like the annual report. Instead, it contains all the data from the year that could take you days to browse through. It covers everything from the geographic source of revenues to the schedule of bond maturities issued by the company. There are no pictures or embellished letters from the CEO: just facts, figures, and decisions made. The 10-K form also discusses any accounting procedures the company employs, along with any legally required disclosures.
Some people find the 10-K form a boring read. If you enjoy finance and like crunching numbers, it is invaluable. Extremely complex companies may have 10-K forms that contain hundreds of pages.
The Annual Report
The publicly traded company publishes the annual report to shareholders a few months after the fiscal year ends. The annual report includes almost everything you need to know about the company. This might be more polished than the annual report filed with the 10-K with the U.S. Securities and Exchange Commission.
The annual report is sent to shareholders before the company’s annual general meeting. It should also be posted on the company’s website.
The annual report typically contains a letter from the CEO discussing the company’s performance. It usually outlines their expectations for the upcoming year and reiterates their vision and philosophies. At the back of most annual reports, there is a collection of documents, footnotes, charts, and reports that you should read as they can help you build a true picture of the company.
You should be able to access the company’s annual report even if you are not a shareholder. Click on the investor relations link on the company’s website. From there, you should be able to download the report in PDF format.
Get
On Your Information from the Source
You can access the company’s financial data from portals like MarketWatch or Yahoo! Finance, but it’s better to go directly to the company’s own report, as errors can creep into data transmitted to third parties.
The data you get on these sites is very limited in scope. You can’t build any context or know what’s happening just by looking at the company’s beta, stock price, and price history. It’s important to read the annual report or the 10-K or 10-Q form yourself, as there are many things that may not be listed on these sites.
Consider AIG before the Great Recession in 2008 and 2009. The company received a massive government bailout after losing billions following the crisis. If you had read the annual report carefully, you would have been horrified by the exposure to subprime mortgage derivatives and swaps. This didn’t show up on financial sites; all you could see was rising net income, growing assets, and expanding cash flow.
Never forget that when you buy a stock, you are buying ownership in the business. If you are a bond investor, you are lending money to the company.
Comparison of 10-Q and 10-K Reports Among Competitors
These forms are very useful when comparing companies. Be sure to request the annual reports and 10-K and 10-Q forms of the company’s competitors if you want to understand its strengths and weaknesses. For example, this can help you better understand an oil company if you’re studying all oil companies at the same time. You can analyze the financial data and ask yourself, “What is different?”
You will find that companies may have different capital structures. You might look at DuPont ROE variables and see what drives the returns. You can also gain insight into which companies will be at the forefront by looking at metrics like sales per square foot and interest coverage ratios.
If one company explains a new accounting rule that will significantly change how results are presented, and the other simply glosses over it, you should hear alarm bells in your mind about the latter company. Similarly, one company may indicate an opportunity facing the industry, while the conservative company reports nothing beyond its recent results. The first company might appear to be a better investment at that moment because you have more information.
Conclusion
If you plan to invest in stocks or bonds, learning how to read and evaluate the 10-Q and 10-K forms and annual reports is a vital skill to develop. Informed investors are successful investors; so don’t neglect reviewing these important documents when they are released.
Takeaways
- 10-Q forms are filed quarterly and contain less detail than 10-K forms.
- 10-K forms are filed annually and include extensive financial data.
- Annual reports are sent to shareholders once a year and usually contain everything you need to know about the company.
- You can obtain copies of these reports from financial websites, but it’s best to get them directly from the company.
Source: https://www.thebalancemoney.com/annual-reports-10k-10q-357266
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