Form 10-K for Beginners: Definition, How to Read One

Backing up this material are notes, explaining the accounting methodology, and the Auditor’s Report—a statement from the outside accounting firm that reviews the documents, and attests to their accuracy. Securities and Exchange Commission (SEC), that gives a comprehensive summary of a company’s financial performance. The 10-K includes information such as company history, organizational structure, executive compensation, equity, subsidiaries, and audited financial statements, among other information. Part 1 describes the business, as well as information such as risk factors and pending legal proceedings. It also provides information about the stock, forward-looking statements, and management discussion about the firm’s financials. Form 10-K includes the annual financial statements — the balance sheet, income statement (statement of earnings), statement of retained earnings and statement of cash flows — for the current reporting year and up to the previous five years.

  • The information herein should not be used or relied upon in regard to any particular facts or circumstances without first consulting a lawyer.
  • For this reason, all 10-Ks follow the same structure based on the SEC’s form.
  • The Management Discussion & Analysis, found in the filing’s Part II, Item 7, is loaded with information about the company’s financial performance, management’s plans and expectations, and potential red flags.
  • Also, the 10-K can be overwhelming as the document often exceeds 100 pages in length.
  • My Accounting Course  is a world-class educational resource developed by experts to simplify accounting, finance, & investment analysis topics, so students and professionals can learn and propel their careers.

The number of shares outstanding used in the statement of earnings is the average shares outstanding during the period, not the ending value. Companies with over $10 million in assets have different requirements than business with less than $10 million. Also, smaller entities are allowed to file the 10-KSB, which is a shortened version of the 10-K that requires less disclosure and less work to prepare. As you can see the form 10-K is really a comprehensive summary of not only the current financial position of the company, it is also a detailed summary of the company structure and relationship with auditors, accountants, and attorneys.

The new cybersecurity disclosures in Form 10-Ks will need to be thoroughly vetted among responsible stakeholders internally to confirm accuracy and alignment with the company’s own internal risk profile. The SEC’s recent enforcement action against SolarWinds emphasizes the importance of aligning disclosures with a company’s own internal documentation. Item 408(a) of Regulation S-K requires disclosure of Rule 10b5-1 trading arrangements and non-Rule 10b5-1 trading arrangements adopted or terminated by a director or Section 16 officer during the fourth quarter of the fiscal year. The expiration of a trading plan pursuant to its terms is not required to be disclosed. If disclosure is required, a company must identify the officer or director and describe the material terms of such arrangement, including its date, duration, and total amount of securities to be sold or purchased, but excluding any pricing terms. This section also discloses major financial risks faced by the company.

A company’s 10-K contains a wealth of information for investors. Here’s how to find it

Investors should not confuse a 10-K with the “annual report to shareholders.” Both serve as an annual report, but companies usually take a marketing-like approach to the annual report to shareholders. Form 10-K/A is compiled and filed when the company makes an amendment to the Form 10-K after it has been published. Investors should review these amendments to ensure that they do not materially change the investment thesis. The company also will typically provide an update to the competitiveness of the industry, including business trends and any other pertinent information that may affect market share and the company’s ability to reach its goals.

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K Form

But there may be instances where companies will choose to elucidate at length about their philosophy and goals in the coming years in their annual report. As an example, social media company Twitter reports Monetizable Daily Active Users – users who log into its service daily and engage with content – as a revenue source because advertisers direct spending on the platform based on those numbers. It is also important to understand metrics used by companies to report the sources of their revenues in the 10-K. The number of companies using non-GAAP measures to report financial information has increased dramatically in recent years. For example, a company may choose not to report stock-based compensation for its senior executives. It also lists risks accruing to its financials from its exposure to trading or investing markets.

Understanding a 10-K

The deadline for filing a 10-K is between 60 and 90 days after the end of the company’s fiscal year, depending on the size of the company. It is often lavishly illustrated with professionally shot photos and includes charts, diagrams, maps, and other visuals. The change under the law is hugely important because tax compliance is higher when amounts are subject to information reporting, like the Form 1099-K. However, the IRS noted it must be managed carefully to help ensure that 1099-Ks are only issued to taxpayers who should receive them. In addition, it’s important that taxpayers understand what to do as a result of this reporting, and tax preparers and software providers have the information they need to assist taxpayers.

New Disclosure Requirements for Your Form 10-K

In it, readers may find interesting facts or infer information from the financials that other analysts either ignored or overlooked. When looking to invest money in a given stock, knowing how to read a 10-K can reduce the risk of losses and lead to more significant gains. On the first page, the number of shares outstanding is listed as of the published date of the report. Investors will notice that this share count differs from the numbers used to calculate the earnings per share on the statement of earnings.

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What’s in a Form 10-K?

If the company maintains at least $10 million in assets and more than 2000 owners hold an equity stake in the company, that entity must file the 10-K. Forward-looking statement is the disclaimer that projections as to future performance are not guaranteed, and things could go otherwise. This section requires some companies to provide information about mine safety violations or other regulatory matters. As a first-time taxpayer, you’ll need to choose whether to do your own taxes or hire a professional. Under the law, beginning January 1, 2023, a TPSO is required to report third-party network transactions paid in 2022 with any participating payee that exceed a minimum threshold of $600 in aggregate payments, regardless of the number of transactions. TPSOs report these transactions by providing individual payee’s an IRS Form 1099-K, Payment Card and Third-Party Network Transactions.

If a shareholder requests a company’s Form 10-K, the company must provide a copy. In addition, most large companies must disclose on Form 10-K whether the company makes its periodic and current reports available, free of charge, on its website. Form 10-K, as well as other SEC filings may be searched at the EDGAR database on the SEC’s website. This is the meat of the 10-K and lists financial data, including financial statements, related to the company’s operations.