🎯 In 30 seconds: Every US public company files an annual report, the Form 10-K, with the SEC, and it is free on EDGAR. You don’t need to read all of it. In about 20 minutes you can skim the business description, the risk factors, management’s discussion, and the three statements: income statement, balance sheet and cash flow.
Where to find it
- Go to SEC EDGAR and search the company name or ticker.
- Filter filings by type “10-K” (annual) or “10-Q” (quarterly; filed after the first three quarters).
- Open the main document. The Table of Contents links to each Item.
The CEO and CFO must certify the report. The SEC sets what must be disclosed and reviews filings, but it does not vouch for their accuracy.
A 20-minute reading plan
| Minutes | Section | What you are looking for |
|---|---|---|
| 3 | Item 1, Business | How the company makes money, in one sentence you could repeat |
| 4 | Item 1A, Risk Factors | Risks specific to this company, not boilerplate |
| 5 | Item 7, MD&A | Management’s explanation of why results changed |
| 8 | Item 8, Financial Statements | The three statements and the auditor’s report |
The three statements
Income statement: revenue minus costs equals profit, over a period. Look at revenue growth, gross margin (gross profit ÷ revenue) and operating margin (operating income ÷ revenue) over three years.
Balance sheet: what the company owns (assets) and owes (liabilities) on one date. Equity is the difference. Check cash vs debt, and current assets vs current liabilities (bills due within a year).
Cash flow statement: actual cash in and out, split into operating, investing and financing. Free cash flow is commonly figured as cash from operations minus capital expenditures. Profit is an accounting opinion; cash is harder to fake.
Worked example
A made-up company reports these numbers for the year:
| Revenue | $500 million, up 10% |
| Net income | $50 million |
| Cash from operations | $20 million |
| Capital expenditures | $35 million |
| Accounts receivable | Up 40% from last year |
- Net margin: $50M ÷ $500M = 10%. Looks fine.
- Free cash flow: $20M − $35M = −$15M. The company burned cash while reporting a profit.
- Receivables grew four times faster than sales. Customers may be paying slower, or sales may be booked early.
None of this proves anything is wrong. It tells you exactly which pages of MD&A and the notes to read next.
Red flags worth a second look
- Cash from operations well below net income, year after year.
- Receivables or inventory growing much faster than revenue.
- Debt rising while cash falls, or big debt due within a year.
- An auditor’s report mentioning “substantial doubt” about the company continuing as a going concern.
- A material weakness in internal controls (Item 9A), a restatement of past results, or a change of auditor.
- Heavy use of “adjusted” earnings that strip out costs which recur every year.