File These Under “Forms that Matter”: Basics of the 10-K, 10-Q, & Other SEC-Required Filings

Publicly traded companies, whatever the industry or sector, are all in the public information business. That means they’re required to report details about their business in the form of regular filings, like the 10-K and 10-Q, with the U.S. Securities and Exchange Commission (SEC). For investors, this is good: freely available SEC filings with particulars on a company’s fundamentals, business plan, leaders, and other key factors that may influence share prices.

Why should investors study SEC filings? “It’s about making informed decisions as an investor,” said Viraj Desai, senior manager, portfolio construction, TD Ameritrade Investment Management, LLC. “If you just trade on headlines, you may be ignoring the fundamentals of a company and certain things an owner should be aware of. It’s about building a portfolio where every decision is informed and deliberate.”

There’s also a lot out there. The SEC lists 100-plus pages of different forms that companies may file with the regulators. Fortunately, investors might want to focus on just a handful: the 10-K, the 10-Q, and the 8-K.

No need to ask Jeeves, but rather ask EDGAR. That’s the SEC site that allows full search-and-access of the filings all public companies are required to complete. Here are a few basics on important SEC filings for investors.

10-K: Get the Big Picture

Most U.S.-based public companies are required to file a 10-K with the SEC every year, and 10-Ks must follow a set order of topics. A 10-K may run into hundreds of pages and is often filed at the same time as an annual report to shareholders, which the SEC requires when companies hold annual meetings to elect members of their boards of directors. Both reports are important, but the 10-K typically includes more details.

Among SEC filings, the 10-K is “hands-down the most important,” Desai said. “If you want to know anything about a business, a 10-K is a comprehensive resource on a company’s financial condition and prospects. You can see how a company defines its business model, for example. If you want to understand what a business actually does, read the 10-K.”

The 10-K covers an array of critical subjects, including major risks to the business, financial health, management’s experience, and other areas of “material” interest to shareholders, Desai pointed out. Within the 10-K, investors should consider three particularly important sections:

• Balance sheet. This section includes a company’s assets and liabilities so investors can see how much debt a company has and—for example—compare that to industry peers. Are the company’s assets primarily real estate, inventory, or something else? Is the company holding a large stockpile of cash, or is it a little strapped? “The balance sheet can help answer questions like that,” Desai explained. “You want to make sure those assets translate into equity value.”
• Income statement. This section includes how much money a company is making, its expenses (such as cost of goods sold and taxes), and how it’s quantifying those expenses. What’s the company’s bottom line and is that bottom line growing? “You want to see earnings growing because ultimately that translates into potential returns for the stock,” Desai added.
• Statement of cash flow. A “no-nonsense” section that shows how a company’s cash is being used, such as funding operations or debt payments. “A company may try to finesse or even manipulate earnings to paint itself in the best light,” Desai noted. “But cash flow tends to be an area where it’s hard for companies to pull the wool over the market’s eyes.”

Investors may also want to scan any footnotes to these three statements, along with the company management’s discussion and analysis of the business and outlook. Company leaders often provide details on what happened over the past year and guidance on the year ahead.

Other important parts of the 10-K include discussions on corporate governance, executive compensation, and board member information. Investors might want to check for any conflicts of interest for the board. It’s a way to help make sure the company is being run in a way that puts shareholders first.

10-Q: Quarterly Financial Checkup

Every quarter, public companies must file a 10-Q report containing unaudited financial statements and information about the company’s operations in the previous three months.

Although the 10-K usually holds more information than the 10-Q, a lot can change the further a company progresses through its fiscal year. Look at the 10-Q as a regularly updated snapshot detailing the financial health of a company.

The 10-Q also includes revenue and earnings-per-share figures that help form the basis of analysts’ assessments of the company, and these figures often move share prices when companies report quarterly results. “Analysts who follow the company may update their earnings and revenue estimates based on what’s in the latest 10-Q,” Desai commented.

8-K: Just So You Know

The 8-K is basically an ad hoc, “current report” a company must file to announce events or changes that weren’t included in a recent 10-K or 10-Q and that could have a “material” impact on shareholders. For example, changes in corporate governance, a new business code of ethics, and completion of an acquisition or sale of assets may prompt an 8-K filing.

Many of these events won’t move a company’s share price, but a few events that require an 8-K bear watching, such as a bankruptcy, a report of violations, or an executive hire or departure.

Other SEC Filings to Keep an Eye On: 13F, S-1

Institutional investment managers with at least $100 million under management are required to report their holdings in quarterly 13F filings. For investors, the 13F can provide a handy way to check which stocks, bonds, and other securities a mutual fund invests in and get a sense of a fund manager’s investing style and outlook.

Interested in IPOs? That’s where the S-1 filing comes in. A company or fund preparing to offer securities for sale (such as in an initial public offering) typically files a prospectus, which is often contained in an S-1. Prospectuses are worth studying for insights into a company’s or fund’s management, strategy, and long-term outlook, and can help investors understand the risks of an IPO.

Bottom Line on SEC Filings

Investing in publicly held companies? There’s good news and bad news—and they’re the same: There’s a wealth of information at your fingertips. It’s all right there, but it can be a lot to take in. But knowing where to look and which pieces of information to concentrate on can help you narrow the focus of your research.