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What is a 10-k?

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The 10-K is a comprehensive report mandated by the U.S. Securities and Exchange Commission (SEC) that publicly traded companies must file annually. This report provides a thorough overview of a company's financial performance over the past year.

It's an important document for investors, analysts, and other stakeholders who want to understand what a company does, its financial position, and potential risks.

At its core, the 10-K is more than just a financial document. It offers a detailed picture of a company's overall business, including its history, organizational structure, equity, subsidiaries, and earnings per share. It also provides insights into the company's operations, risk factors, and management's analysis of the financial condition and operating results.

How does a 10-K Work?

The 10-K is filed annually, within 60-90 days after the company's fiscal year-end, depending on the company's size. The SEC mandates that companies with a public float of $700 million or more have to file a 10-K within 60 days of the fiscal year-end. Public float refers to the corporate shares that public investors hold and trade (versus locked-in shares that company officers and other controlling interests hold). Companies with a public float under $700 million but greater than $75 million must file within 75 days, and companies with less than $75 million must file within 90 days.

What are the key sections in a 10-K?

This filing is a legal requirement to ensure transparency in financial reporting, allowing stakeholders to make informed decisions. A typical 10-K includes five key sections:

  • Business Overview: This section outlines the company's primary operations, products, services, and competitive environment.
  • Risk Factors: Companies must disclose any risks that could potentially harm their business or financial condition.
  • Selected Financial Data: This section summarizes the company’s financial performance over the last five years, offering a snapshot of its long-term financial trends.
  • Management's Discussion and Analysis (MD&A): This narrative offers management’s perspective on the business results, including explanations of the financial statements, significant changes in financial condition, and a discussion of the company's liquidity and capital resources.
  • Financial Statements and Supplementary Data: This section includes relevant financial statements like income statements, balance sheets, and cash flow statements.

The report also discloses the compensation of key executives. The report must be reviewed and certified by an independent auditor, and the financial statements section of the report typically includes the scope of this review.

Finally, a 10-K filing must include signed letters from the organization’s chief executive officer and chief financial officer with a sworn statement attesting to the accuracy of the information contained in the filing.

What purpose does a 10-K serve?

For investors and financial analysts, the 10-K is a useful tool for evaluating a company's financial health and investment potential. It offers a more detailed and comprehensive view than quarterly reports (10-Qs) and press releases. By analyzing the 10-K, stakeholders can assess the company’s performance, understand its strategic direction, evaluate potential risks, and assess its prospects for future growth.

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