When you're analyzing a company to determine what you think it is worth, you must get your hands on its balance sheet. This report is usually located in the firm's latest annual report, Form 10-K filing, and Form 10-Q filing. Each document serves a different purpose and offers other insights into the business.
What Are the Differences Among a 10-Q, a 10-K, and an Annual Report?
|Filing Frequency||Quarterly for Q1–Q3||Annually||Annually|
|Level of Detail||Less detail, unaudited financial statements||Extremely detailed, audited financial statements||A polished look at what's in the 10-K|
|Due Date: Large Accelerated Filers (>=$700MM float)||40 days||60 days||Filed with 10-K|
|Due Date: Accelerated Filers ($75MM–$700MM float)||40 days||75 days||Filed with 10-K|
|Due Date: Non-Accelerated Filers (<$75MM float)||45 days||90 days||Filed with 10-K|
|Purpose||Provides ongoing view of company's financial position during year||Provides comprehensive overview of everything about a business's financial state||Offers a more succinct, digestible view of company finances than the 10-K|
The 10-Q, 10-K, and annual report all provide you with a view of a company's financial health. They must be filed on schedule with the U.S. Securities and Exchange Commission (SEC). Here are the key aspects of each report:
- Filing frequency: A 10-Q is filed quarterly with the SEC following the first three quarters of the year. The 10-K and annual report come once a year after the end of the fiscal year.
- Level of detail: While the 10-Q provides a quick, unaudited view of the company's financial information, the 10-K delves deep into every aspect of the company's situation and is based on audited data. The annual report offers a polished, summary look at what's in the 10-K.
- Due date: Due dates for 10-Qs range from 40 to 45 days after the close of the quarter. Annual reports and 10-Ks are filed together 60 to 90 days after the end of the fiscal year, depending on the company's size.
Let's look at each form and its purpose in greater depth so that you can gain a better grasp of their functions.
The 10-Q is like the 10-K, but it covers only a quarter's worth of financial data. It contains much less detail than the 10-K, due to the short measurement period. It can be very useful from time to time if you're looking for short-term changes in a company.
The Form 10-Q can give insight into changes within a business, long before those changes show up in the earnings figures. For instance, you might see that inventory turnover is getting better (or worse) or that accounts receivable turnover is improving. You might even see warning signs that there is a credit problem with customers, because collections are slow. Changes in working capital, lawsuits, and other legal risks might be mentioned for which cash reserves haven't been built yet.
The size of a company's public float, which is the value of its common shares not held by its affiliates, determines how much time a company has to file its 10-K or 10-Q.
The Form 10-K is an annual filing that publicly traded companies must submit to the SEC following the close of their fiscal year.
The 10-K is an annual report, but it looks and reads nothing like the annual report. Instead, it has all the data from the year that can take you days to go through. It covers everything from the geographic source of revenue to the maturity schedule of bonds the company has issued. There are no pictures or flowery letters from the CEO: just the facts, figures, and decisions made. The 10-K also discusses any accounting procedures the company uses in addition to any that are required by law.
Some people find the 10-K to be a dreadful read. If you love finance and enjoy crunching numbers, though, it is invaluable. Truly complex businesses may have 10-Ks that are hundreds of pages long.
Sometimes, you may run into a company with no financial statements or other disclosures in the Form 10-K. Instead, it might have a passage that reads along the lines of "incorporated herein by reference." This means that the information has been released elsewhere, such as in the annual report, and you should look there for the data you need.
A publicly traded company releases the annual report to shareholders several months after the end of their fiscal year. It includes almost everything you need to know about the firm. This may be more distinct than the annual report filed with form 10-K to the SEC.
The annual report is sent to shareholders before the company's annual meeting. It also must be posted on the company's website.
An annual report usually contains a letter from the CEO that talks about the performance of the company. It usually lines up their expectations for the upcoming year and reiterate the vision and philosophies. Tucked away in the back of most annual reports is a collection of documents, footnotes, charts, and reports that you would be wise to read as they can help you build a true picture of the firm.
You should be able to access a firm's annual report, even if you're not a shareholder. Click on the investor relations link on the company's website. From there, you should be able to download the report in PDF form.
A publicly traded company must also file a Form 8-K to inform the SEC and shareholders of any event that could affect the stock price.
Get Your Info From the Source
You can access a firm's financial data from portals such as MarketWatch or Yahoo! Finance, but it's better to go directly to the company report itself, because errors can creep into data that's been carried over to third parties.
The data you access on these sites is too limited in scope. You can't build any context or know what's going on by looking at a firm's beta, stock price, and price history. It's important to read the annual report, 10-K, or 10-Q yourself, because there are all sorts of things that might not be included in these websites.
Think about AIG before the Great Recession of 2008 an 2009. The company received a huge government bailout after losing billions after the crisis. If you had carefully read the annual report, you would have been terrified by the exposure to subprime mortgage derivatives and swaps. This didn't show up on the financial sites; all you could see were booming net income, growing assets, and expanding cash flow.
You must never forget that with a stock, you are buying ownership in a business. You're lending money to a business if you're a bond investor.
There are no shortcuts. You have to do the work and understand the risk you are taking to collect the dividends and interest payments.
Comparing 10-Qs, 10-Ks, and Reports Across Competitors
These forms are very useful when comparing firms. Be sure to request the annual reports, 10-Ks, and 10-Qs of a company's competitors if you want to understand its strengths and weaknesses. For example, it can help you understand an oil major better if you are studying all of the oil majors at the same time. You can analyze the statements and ask yourself, "What's different?"
You'll find that firms might have different capital structures. You might look at the DuPont ROE variables and see what is driving returns. You could also gain insight into which firms will come out on top by looking at indicators like the trend in sales per square foot and interest coverage ratios.
If one business explains a new accounting rule that will greatly change how it reports results, and another only glosses over it, you should hear the warning bells in your mind about the latter firm. Likewise, one company may point out an opportunity the industry faces, while a more conservative firm doesn't report on anything other than their results during the latest period. The former company would seem to be the better investment at that time, because you have more information.
The Bottom Line
If you plan to invest in stocks or bonds, learning to read and evaluate 10-Qs, 10-Ks, and annual reports is a vital skill to cultivate. Informed investors are successful investors; don't skip reviewing these important documents when they come out.
- Form 10-Q filings are filed quarterly and contain much less detail than 10-K filings.
- Form 10-K filings are annual reports filed with the U.S. Securities and Exchange Commission and contain mountains of financial data.
- Annual reports are sent to shareholders once a year and usually include almost everything you need to know about the business.
- You can obtain copies of these reports from financial websites, but it's best to get them directly from the company.