Video Lesson
Prefer watching? This video covers the key concepts from this article.
How to Read a 10-K
The 10-K is the annual report filed by US public companies. It’s long, dense, and often intimidating — but it contains the most complete picture of a business.
Where to Focus
1) Business Overview (Item 1)
Look for:
- How the company makes money
- Key products and segments
- Customer concentration
- Competitive landscape
2) Risk Factors (Item 1A)
Risk factors can be boilerplate, but changes matter.
Watch for:
- Regulatory threats
- Dependency on a supplier
- Cyclicality and macro sensitivity
- Litigation
3) Management’s Discussion and Analysis (MD&A)
MD&A is where management explains results.
Check:
- Revenue drivers (price vs volume)
- Margin expansion or contraction
- One-time adjustments
- Forward-looking commentary
4) Financial Statements
Look beyond the headline numbers:
- Income statement: margins, growth, profitability
- Balance sheet: leverage, liquidity, working capital
- Cash flow: cash generation, capex needs, buybacks/dividends
5) Notes and Accounting Policies
This is where surprises hide:
- Revenue recognition
- Stock-based compensation
- Lease obligations
- Segment reporting
Red Flags to Watch
- Consistently negative free cash flow without a clear plan
- Rising debt without rising earnings power
- Heavy dilution from stock-based compensation
- Weak disclosures or confusing segment reporting
- Aggressive adjustments that make results look better
A Simple Workflow
- Read business overview
- Scan risk factors for what’s unique
- Read MD&A for drivers
- Check cash flow vs earnings
- Review balance sheet leverage
Conclusion
You don’t have to read every word. The goal is to build a clear, evidence-based narrative of how the business works, what could break, and whether the valuation reflects those risks.