How to read an annual report (10-K)

For a U.S. public company, the Form 10-K is the annual report filed with the SEC; the 10-Q is a quarterly filing. Find filings through SEC EDGAR. Read the business description and segment information, then the risk factors, management's discussion and analysis (MD&A), audited financial statements, and footnotes. Proxy statements (DEF 14A) add detail about governance, compensation, and shareholder matters.

Ask what the company sells, who pays, how recurring the revenue is, where its bargaining power comes from, and what could make customers leave. Compare today's description with prior filings: acquisitions, a changing segment mix, customer concentration, litigation, and a rewritten risk disclosure can reveal important changes.

Management's discussion explains results, liquidity, known trends, and significant uncertainties as management sees them. It is useful but not an independent verdict. Look for explanations of revenue and margin changes, cash needs, debt maturities, and the gap between reported earnings and operating cash flow.

Risk factors list material risks, but they are not ranked probability estimates and often contain broad standard language. Connect a risk to the actual business: for example, a large customer, a patent expiry, variable-rate debt, or a regulatory license can matter more than a generic warning. Compare the risk section over time and follow up in the relevant footnotes.

• Read at least three years of annual filings plus recent quarterly updates.
• Find the audited statements, auditor opinion, critical accounting estimates, and related-party transactions.
• Compare claims in a presentation with filed segment data and cash flows.
• Keep a short thesis, disconfirming evidence, key metrics, and the price assumptions you used.