How to read a 10-K

Cover: Cover page

The cover page identifies the registrant and its reporting status. It is the only place in the document that states a market value, and it fixes the share count the rest of the report is measured against.

What to look for: The fiscal year end, which explains why the quarters may not line up with calendar quarters. The filer status: a large accelerated filer must file within 60 days of year end and must have its internal controls audited. The aggregate market value of shares held by non-affiliates as of the last day of the second quarter, the one market figure the SEC requires here. The number of shares outstanding as of a date shortly before filing, which is the count to use for per-share figures. Whether parts of Part III are incorporated by reference from the proxy statement, which tells you where the pay and board sections live.

Questions worth asking: What is the fiscal year end and how many shares were outstanding as of the cover page date?

Item 1: Business

Item 1 is the company describing itself: what it sells, to whom, through which channels, and against whom. Read it before any summary so that you form your own picture first.

What to look for: The segments and the products or services inside each, so you can match them later to the segment note in the financial statements. How the company gets paid: subscriptions, transactions, long-term contracts or one-time sales, since each carries a different quality of revenue. Customer concentration, which must be disclosed when one customer is 10% or more of revenue. Supplier and manufacturing dependencies, especially single-source components or a single factory. The competition paragraph, where the company names its rivals and the basis on which it claims to compete. Seasonality, backlog, regulation and intellectual property, which frame how predictable the business is.

Questions worth asking: In plain language, what does this company sell, who buys it, and how does it make money? Does this filing disclose any customer, supplier or geographic concentration?

Item 1A: Risk Factors

Risk factors are legal disclosures, so much of the list is boilerplate that every company carries. The information is in the risks that are specific to this company and in what changed since last year.

What to look for: Risks that name a specific customer, supplier, product, regulator or lawsuit, rather than risks that could apply to any company. Risks that are new or expanded compared with last year, since companies add language after something has gone wrong or is expected to. The order: companies usually put the risks they worry about most first. Phrases such as "we have experienced" or "we recently", which mark a risk that has already materialised. Going-concern language, which belongs in the auditor report and the notes but is often foreshadowed here.

Questions worth asking: Which three risk factors in this filing are most specific to this company rather than boilerplate? Do any risk factors describe something that has already happened to the company?

Item 1C: Cybersecurity

Since fiscal years ending after 15 December 2023, companies must describe how they manage cybersecurity risk and who oversees it. It is short, and mostly useful as a check on whether an incident has already hurt the business. Only present in reports for fiscal years ending after 15 December 2023.

What to look for: Whether any past incident has materially affected, or is reasonably likely to affect, the company. Who is responsible: a named officer, a committee, and how often the board is briefed. Whether third-party assessors are used and whether suppliers are covered.

Questions worth asking: Does this filing disclose any cybersecurity incident that affected the company?

Item 3: Legal Proceedings

Material litigation and regulatory actions are listed here, often by reference to a note in the financial statements. What matters is the size relative to the company and whether a loss has been accrued.

What to look for: Cases where the company is the defendant and the claimed amount is large relative to net income or cash. Government investigations, which are often described before any charge is brought. A cross-reference to the contingencies note, where the accrued amount and the range of possible loss are disclosed. Environmental proceedings, which must be disclosed above a stated dollar threshold.

Questions worth asking: What legal or regulatory proceedings does this filing disclose, and has the company accrued for any of them?

Item 5: Market for Common Equity

Item 5 covers the shares themselves: where they trade, how many holders of record there are, dividends, and the repurchases made in the fourth quarter. It is the first place capital returns show up in the document.

What to look for: The fourth-quarter repurchase table: shares bought, average price paid, and how much remains under the authorisation. Dividend policy and any restriction on paying dividends, which usually comes from debt covenants. The performance graph, which compares the shares against an index over five years and is the one place management must show its own return. Recent sales of unregistered securities, which dilute existing holders.

Questions worth asking: How many shares did the company repurchase in the fourth quarter, at what average price, and how much authorisation remains?

Item 7: Management's Discussion and Analysis

MD&A is management explaining the year in its own words: why revenue and margins moved, where the cash went, and which accounting judgements matter most. It is the most information-dense section and the one to read against last year’s.

What to look for: The overview and any list of key metrics management chooses to report, since those are the numbers it wants to be judged on. Results of operations line by line, and whether each explanation names a volume, price or mix driver rather than restating the change. Liquidity and capital resources: cash generated, debt maturities, commitments, and whether the company says it can fund the next twelve months. Critical accounting estimates, where the judgements that could move earnings are described. Non-GAAP measures and their reconciliations, and what is being added back. Language that has been removed or softened since last year, which is often more telling than what was added.

Questions worth asking: According to the MD&A, what drove the change in revenue and operating margin this year? What does management say about liquidity, debt maturities and its ability to fund operations?

Item 7A: Market Risk

Item 7A quantifies exposure to interest rates, currencies and commodity prices, usually as the effect of a hypothetical move. It tells you how much of the earnings outlook depends on things management does not control.

What to look for: The size of a hypothetical 100 basis point rate move or 10% currency move on income, and whether that is small or large relative to operating income. How much debt is floating rate and whether it is hedged. Which currencies matter, and whether hedging covers revenue, costs or both.

Questions worth asking: How sensitive is this company to interest rates and currency moves according to Item 7A, and what does it hedge?

Item 8: Financial Statements and Notes

The audited statements are the only numbers in the report an independent party has checked. The notes carry the substance: how revenue is recognised, what the segments earn, what the debt looks like, and what could still go wrong.

What to look for: The auditor’s report: an unqualified opinion, any going-concern paragraph, and the critical audit matters, which name the estimates the auditor found hardest. Cash flow from operations against net income over several years, which is the fastest check on earnings quality. The revenue recognition note, especially performance obligations, contract liabilities and any change in policy. The segment note, and whether segment profit adds up to consolidated operating income after corporate costs. Debt maturities by year, covenants, and leases, which together set the fixed obligations. Contingencies, income taxes, related-party transactions and subsequent events, which are where surprises are disclosed.

Questions worth asking: Did the auditor issue an unqualified opinion, and what critical audit matters did it identify? What do the notes say about revenue recognition, debt maturities and contingencies?

Item 9A: Controls and Procedures

Management states whether internal control over financial reporting worked, and for larger companies the auditor attests to it. A material weakness here means the numbers in Item 8 rest on a process known to be flawed.

What to look for: The conclusion on disclosure controls and on internal control over financial reporting: effective or not. Any material weakness, what caused it, and the remediation plan and timeline. Whether the auditor attested to internal control, or the company is exempt as a smaller filer. Changes in internal control during the fourth quarter, which often accompany a new system or an acquisition.

Questions worth asking: Does management conclude that internal control over financial reporting was effective, and is any material weakness disclosed?

Items 10 to 14: Directors, Compensation and Related Parties

Part III covers the board, executive pay, ownership by insiders, related-party dealings and auditor fees. Most companies incorporate it by reference from the proxy statement filed within 120 days of year end, so the section itself is usually a pointer.

What to look for: Whether the items are incorporated by reference, in which case the proxy statement (DEF 14A) is the document to read. If the text is present: how executives are paid, which metrics drive bonuses, board independence, and any transactions with insiders. Auditor fees, and how much of the total is for non-audit work.

Questions worth asking: Are the Part III items incorporated by reference from the proxy statement, or disclosed in this filing?

Item 15: Exhibits

The exhibit index lists the documents filed with or incorporated into the report. It is where the actual contracts live, and it is the fastest way to find out what the company has committed to.

What to look for: Exhibit 21, the list of subsidiaries, which shows the legal structure and the countries the company operates through. Exhibit 10 material contracts: credit agreements, executive employment agreements and major customer or supplier contracts. Exhibit 4, the description of securities, which sets out shareholder rights. Exhibit 97, the clawback policy, and Exhibits 31 and 32, the officer certifications.

Questions worth asking: Which material contracts and subsidiaries are listed in the exhibit index of this filing?

Read it with a guide beside the text

Scrutar has a guided read mode in the filing viewer. It steps through the same path beside the document, jumps to each section, and puts each question above to Ask Scrutar with only that filing in scope, so the answer is cited back to the text you are reading.