Thread by @QCompounding

How to read 10-Ks

I'll teach it to you in 2 minutes:

If you want to make good investment decisions, you need to understand the company you invest in.

An annual report (10K) tells you everything you need to know.

A 10K consists of 4 parts:

1. Business
2. Risk factors
3. Management discussions and analysis
4. Financial statements

1. Business

This section describes the company’s main products and services.

It's a good place to start as it tells you how a company makes money.

2. Risk factors

This section shows the risks a company faces, usually listed in order of importance.

As Benjamin Graham once said: “The essence of investment management is the management of risks, not the management of returns."

3. Management discussions and analysis (MD&A)

Management's view on the business results of the past fiscal year.

This allows management to tell its story in its own words.

4. Financial statements

There are 3 financial statements in a 10K:
- Balance Sheet
- Income Statement
- Cash Flow Statement

Balance sheet:

The balance sheet gives you an overview of a company's main assets and liabilities.

You want to invest in companies which don't have too much debt.

Income statement:

An income statement is also called a profit and loss account.

It shows the company's revenues and expenses over a certain period.

Cash Flow Statement:

The cash flow statement shows how much cash goes in and out a company over a certain period.

You want to invest in companies that make money and manage their cash position well.

Not convinced yet about the importance of a 10K?

Here's Jim Rogers about the best advice he ever got:

The word is out!

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To celebrate, I am sharing a free Financial Analysis course.

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