What Is a 10K and How Do You Read One?

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A 10K is a document every public company completes once annually, which it files with the Securities and Exchange Commission (SEC).

The SEC requires public companies to fulfill their duties by being transparent and detailed in their communication with investors. The SEC exists in part to create a level playing field for all public market investors.

So what’s in that 10K?

Companies include vital information about their operations, past financial results, earnings prospects and general business model.

Before we get into the financial information, let’s cover the business model stuff you may need the most.

In the COVID-19 environment, several types of companies have been in the spotlight, but that doesn’t mean you knew much about them before the pandemic. Biotech companies, for example, are dominating headlines, as the world is in need of a COVID-19 vaccine. So if you want to consider buying a few shares a biotech company, you can first learn about how their business works by reading the 10K.

Go to the company’s investor relations page, find the SEC filings section and download the PDF of the filing. You can find a section in the table of contents that shows an extensive and detailed description of the company’s operations. The company will describe its strategy, what area of the market it’s looking to satisfy, how it manages costs, what levers it can pull in times of stress and what impacts the business negatively or positively.

The company will also break down its risk factors, something that newly public companies as well as older more mature ones are always required to be open about with investors.

More concretely, the 10K shows past financial results and a little bit about what it expects in the future.

The 10K is not only an opportunity for the company to describe to investors why its recent financial results came out the way they did, but it is also an opportunity to assess what management’s strategy is, how it plans to execute that strategy and how viable profit projections are.

The point: any time you feel you need more clarity on what might drive a stock you hold, or what a company you’re considering buying is up to, give that 10K a read.

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