If you want to be an Investor, you NEED to know how to read an Annual Report (10-K).
But they can be overwhelming. They have hundreds of pages and are very complex.
But no investor reads the entire report.
Here's how to efficiently read and understand a 10-K (+example)👇🏼
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 it operates.
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:
I also analyze/value companies in this newsletter for the Paid Community:
The additional features are:
Monthly Deep Dives/Valuations of Companies
Access my Portfolio (+Real Time Updates)
Free Access to all current and future Products
Direct E-Mail Access to Me
The first week of January, there’s a 20% Discount, you might want to check it out:
2. Risk Factors
Knowing about the risks is critical to your valuation.
However, this section varies in its usefulness. Some companies list all the risks they see, others only the ones they need to report.
Here, own due diligence matters most.
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 did this in this article:
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 approach to reading a 10-K offers the most value at a short time.
But investing isn't a race. Don't stop here, research further.
In investing, you only win when you have a better understanding than the other side of the trade.
Other Great Resources:
Besides the 10-K, there are other helpful resources to learn about factors that aren’t the 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.