What is a 10-K?
A 10-K is an annual report in a standardized form. This report is required by the U.S. Securities and Exchange Commission (SEC) for all publicly tradedU.S. companies. The SEC is the U.S. Securities and Exchange Commission. A 10-K contains more information than a conventional annual report. The aim of the report is to provide investors with more comprehensive information about a company. Due to the amount and type of information it contains, a 10-K report can be very complex. The form is strictly prescribed by the SEC. A 10-K presents the information in a much simpler way than, for example, a non-standardized company annual report. Nevertheless, the report is a very important document for investors to obtain comprehensive information about a company. Under certain circumstances, it can be useful to involve a specialist, such as an asset manager, in the analysis of the report.
The information documented in the 10-K includes, for example:
- Organizational structure
- Company history
- Earnings per share
- Annual financial statements
- Subsidiaries
- Remuneration of managers
- Other relevant data
The 10-K is therefore intended to provide a clearer picture of all of a company’s activities and risks. 10-K reports are public information and therefore easily accessible. They can often be found on company websites in the “Investor Relations” section. In addition, all 10-K reports are available in the SEC’s EDGAR database.
In the first three quarters, companies must also submit Form 10-Q. Q stands for quarter. The 10-K then follows after the last quarter. In the case of special events such as bankruptcy, disposals or acquisitions, an 8-K form must be submitted. Accordingly, the 8-K is not filed regularly but only in exceptional situations.
The contents of the 10-K
A standard 10-K consists of four parts and 15 subject areas. In general, the following important points are included in a 10-K:
- Business: The main activity of the company is defined in this section.
- Risk factors: This section of the report shows the company’s risks. The risks are sorted in descending order.
- Financial data: This section shows selected financial data of the company over the last five years and is thus intended to provide a brief insight into the company’s performance.
- Management‘s Discussion and Analysis of Financial Condition and Results of Operations (MD&A): In this section, management discusses the financial condition of the company during the last financial year.
- Annual financial statements and supplementary data: The audited annual financial statements such as the income statement, balance sheet and cash flow statement can be found here.
The information contained in the 10-K report must be accurate, which must also be confirmed and signed in writing in the 10-K by the company’s Chief Executive Officer (CEO) and Chief Financial Officer (CFO). The signatures became mandatory after several cases of accounting fraud following the dot-com bankruptcy. This means that both the CEO and the CFO can be held liable in the event of breaches.