Earnings
How to Read a 10-K and 10-Q: Where the Real Story Is
The press release is the company's summary. The 10-K and 10-Q are the full record, filed with the SEC, with the details the summary leaves out.
What these filings are
U.S. public companies must file regular reports with the Securities and Exchange Commission:
- Form 10-K, the annual report, with audited financial statements and a full description of the business.
- Form 10-Q, filed for each of the first three quarters, with unaudited financial statements and updates.
- Form 8-K, filed for major events between reports, such as earnings releases, acquisitions or executive changes.
They are free on the SEC's EDGAR system. Search by company name or ticker, then filter by form type.
Item 1: Business
Start here. It explains, in the company's own words, what it sells, who its customers are, who it competes with and how it makes money. If you can't summarize the business in two sentences after reading this section, keep reading or move on.
Item 1A: Risk factors
Companies must list the material risks they face. Much of it is boilerplate, but compare this year's list with last year's. New risk factors, or old ones that got longer, often point to what management is worried about.
Item 7: Management's Discussion and Analysis
The MD&A is where management explains the numbers: why revenue rose or fell, what drove margins, how it plans to fund operations, and known trends that could affect results. It is often the most useful section for understanding the story behind the chart.
Item 8: The financial statements
| Statement | What it shows | Ask yourself |
|---|---|---|
| Income statement | Revenue, expenses and profit over the period | Are sales and margins growing? |
| Balance sheet | Assets, liabilities and equity on one date | How much debt? How much cash? |
| Cash flow statement | Cash in and out from operations, investing and financing | Does profit turn into cash? |
| Shareholders' equity | Changes from earnings, dividends, buybacks and share issuance | Is the share count rising or falling? |
The notes: where details live
The notes to the financial statements explain the accounting choices and break down the totals: debt maturities, revenue by segment, lease obligations, stock-based compensation, pending lawsuits. When a number on a statement surprises you, the matching note usually explains it.
Practical tips
- Use your browser's find function. Search for "debt," "customers," "competition" or "going concern."
- Read the 10-K once a year in full; skim each 10-Q for changes.
- Use EDGAR full-text search to find every filing that mentions a phrase.
- Compare three years side by side. Single years can mislead.
Going concern. If the auditor's report includes "substantial doubt about the company's ability to continue as a going concern," the auditor is flagging a real risk that the company may not survive the next year. Take it seriously.
What to check in the press release, the 10-Q and the call. (PDF)
Common questions
What is the difference between a 10-K and a 10-Q?
A 10-K is the annual report, with audited financial statements and a full description of the business and its risks. A 10-Q is the quarterly report for the other three quarters, with unaudited financial statements and updates.
Where can I read a company's 10-K for free?
On the SEC's EDGAR system at sec.gov, and usually on the investor relations page of the company's website.
Which section of a 10-K should I read first?
Many investors start with Item 1 (Business), Item 1A (Risk Factors) and Item 7 (Management's Discussion and Analysis), then the financial statements and their notes.