How to efficiently read an Annual Report (10-K)

As an investor, you NEED to know how to read an Annual Report (10-K).

But they often have hundreds of pages and seem way too complex. Here's how to efficiently read and understand them (+example).

For better understanding, we will use Apple’s latest Annual Report.

An Annual Report consists of 4 parts.

We will focus on the most important parts:

1. Business

2. Risk Factors

3. MD&A

4. Financial Statements (+Notes)

1. Business

The business section explains in simple terms what the firm offers and how they operate.

This should always be the first thing you read.

If you’re not interested in the business or don’t understand it, you’re already done. Apple discusses the following topics:

2. Risk Factors

This section is critical to your analysis.

It discusses all important risks the business faces.

It’s a great place to start with your own assessment of the risks that investment could add to your portfolio.

These are the topics discussed:

3. MD&A

This section might be the most interesting one. The management discusses the latest financials.

They talk about margins, external/internal factors on profitability, and break down financials by product or region.

It makes sense to compare this section to previous 10-K’s.

4. Financial Statements (+Notes)

I won’t discuss the financial statements here. I already wrote threads about them. Here we focus on the notes.

They are a great resource for extra information. Reading them will answer most of your remaining questions regarding the statements.

They discuss:

- Accounting Policies

- Financial Instruments

- Accounts Receivable

- Leases

etc.

Generally, they help you to dig deeper and understand the details of the financials.

General Note: This is a quick way to get value from an Annual Report, not the most extensive way.

Other Great Resources:

Besides the 10-K, there are other helpful resources to learn about factors that aren’t content of a 10-K.

I like listening to Earnings Calls and CEO Interviews for a better assessment of management.

That’s a wrap!

Thanks for taking the time. I hope you enjoyed today’s article. If you want me to do a more extensive version of such explanatory articles, please let me know.

Here’s the Link to my Thread on the 3 Financial Statements:

Daniel @MnkeDaniel

Every Investor MUST know how to analyze companies. A huge part of that, is analyzing the 3 financial statements. Here’s how to analyze and interpret the… - Balance Sheet - Income Statement - Cash Flow Statement