Most people want to be an investor
But most investors don’t know how to read 10K annual reports
Here’s how to read 10Ks like a hedge fund:
But most investors don’t know how to read 10K annual reports
Here’s how to read 10Ks like a hedge fund:
If you invest in stocks, fundamental analysis is a huge part of the process
10Ks tell you everything that you need to know
It is very important that you understand how to read 10Ks
10Ks tell you everything that you need to know
It is very important that you understand how to read 10Ks
1/ Business
This is the best section to start with. This includes basically everything about the business.
Look for:
-How the business makes money (products, service)
-How it spends the money it makes
-Marketing strategy
-Competitors
-Distribution process
This is the best section to start with. This includes basically everything about the business.
Look for:
-How the business makes money (products, service)
-How it spends the money it makes
-Marketing strategy
-Competitors
-Distribution process
1A/ If you do not understand the business summary page, you should choose a different business to research.
Businesses usually change their business model every 10 years, so I would check to see how the past changes have impacted their business model.
Businesses usually change their business model every 10 years, so I would check to see how the past changes have impacted their business model.
2/ Risk Factors
This section describes all the risks associated with making an investment into the company.
When you invest in a company, you have goals that you want the company to make that include profits, cash flows ect
These risks might limit these goals
This section describes all the risks associated with making an investment into the company.
When you invest in a company, you have goals that you want the company to make that include profits, cash flows ect
These risks might limit these goals
2A/ Risk Factor🚩
You should look for risk factors that are brand new along with any new regulations.
For example, if "Cyber Hack" is a new risk factor that means there was a recent data breach
Write down the risk factors that bother you most and monitor them
You should look for risk factors that are brand new along with any new regulations.
For example, if "Cyber Hack" is a new risk factor that means there was a recent data breach
Write down the risk factors that bother you most and monitor them
3/ Management Discussion (MDA)
This section is very important
This section provides investors with information on what drove the success and failures of the business
It also compares this year to previous years and the future plans for future success/failure of the company
This section is very important
This section provides investors with information on what drove the success and failures of the business
It also compares this year to previous years and the future plans for future success/failure of the company
3A/ MD&A
You should look for management explain on:
-Revenue growth (If going down, why?)
-Expansion plans
-New partnerships or merger targets?
-Moats
-Metrics that beat/missed
-Biggest risks
-Guidance
-Changes in Governance
You should look for management explain on:
-Revenue growth (If going down, why?)
-Expansion plans
-New partnerships or merger targets?
-Moats
-Metrics that beat/missed
-Biggest risks
-Guidance
-Changes in Governance
4/ Financial Statements
This is the most important part of the 10K because it shows you the money.
These are the 3 financial statements that you should focus on:
-Balance Sheet
-Income Statement
-Cash Flow Statement
Pro Tip: Check the footnotes for juicy data
This is the most important part of the 10K because it shows you the money.
These are the 3 financial statements that you should focus on:
-Balance Sheet
-Income Statement
-Cash Flow Statement
Pro Tip: Check the footnotes for juicy data
4A/ Balance Sheet
It shows company's:
-Assets
-Liabilities
-Shareholders Equity
Balance sheets use the same formula:
Assets= Liabilities + Shareholders Equity
It shows company's:
-Assets
-Liabilities
-Shareholders Equity
Balance sheets use the same formula:
Assets= Liabilities + Shareholders Equity
4B/ Income Statement
The income statement is also called a Profit and Loss Statement
It shows a company's revenue and expenses over a period of time
The income statement is also called a Profit and Loss Statement
It shows a company's revenue and expenses over a period of time
4C/ Cash Flow Statement
The cash flow statement shows how cash moves in and out of the company.
The three main areas of a cash flow statement:
1. Investing Activity
2. Operating Activity
3. Financing Activity
The cash flow statement shows how cash moves in and out of the company.
The three main areas of a cash flow statement:
1. Investing Activity
2. Operating Activity
3. Financing Activity
5/ Executive Comp
You want to make sure financial incentives are aligned with your long-term goals.
You want to make sure that the CEO isn't choosing to overpay himself while underperforming for the company.
Metrics that execs make $ on:
-Revenue
-EPS
-Operating Income
You want to make sure financial incentives are aligned with your long-term goals.
You want to make sure that the CEO isn't choosing to overpay himself while underperforming for the company.
Metrics that execs make $ on:
-Revenue
-EPS
-Operating Income
5A/ Executive Ownership
You want high stock ownership from insiders (Board, C-Suite) this means that they are aligned with shareholder goals
If insiders are buying the stock this is a huge plus.
"Insiders only buy their stock for one reason: they think it will go up."
You want high stock ownership from insiders (Board, C-Suite) this means that they are aligned with shareholder goals
If insiders are buying the stock this is a huge plus.
"Insiders only buy their stock for one reason: they think it will go up."
Thank you for reading!
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