Key takeaways
- US public companies file a quarterly report on Form 10-Q after each of the first three quarters and an annual report on Form 10-K; the 10-K's financial statements are audited.
- Results are often announced first in a press release attached to a Form 8-K, often with notice of a conference call to discuss them.
- All of these filings are free on the SEC's EDGAR system.
- Read the income statement, cash flow statement and balance sheet together, then the management discussion (MD&A) and risk factors.
- Non-GAAP figures are allowed but must be reconciled to GAAP; compare the two before relying on the adjusted number.
Every quarter, US public companies tell investors how the business did, and the filings are free to read. The SEC's investor education office publishes a guide to reading the main reports, and its Beginners' Guide to Financial Statements opens with encouragement worth repeating: if you can read a nutrition label or a baseball box score, you can learn to read basic financial statements.
What gets published, and when
| Document | When | What it contains |
|---|---|---|
| Press release and Form 8-K | When results are announced | Headline results and summary financial statements; often notice of a conference call |
| Form 10-Q | After each of the first three fiscal quarters | Quarterly financial statements and management's discussion |
| Form 10-K | Once a year | The full annual report, including audited financial statements |
Investor.gov's guide to reading an 8-K explains that many companies announce their quarterly and annual results in a press release and an 8-K at the same time, often with an announcement of a conference call to discuss them. FINRA's guide to evaluating stocks notes that the 10-Q is unaudited while the 10-K is audited.
All of these are available free on the SEC's EDGAR system, and most companies also post them on their own investor relations websites. The SEC does not vouch for their accuracy; it sets the disclosure requirements and reviews filings, while the company's CEO and CFO must certify the reports.
FINRA notes that key announcements such as earnings normally take place during the extended-hours period, which is one reason prices can move sharply in after-hours trading; stock market hours explains the risks of trading then.
The three core statements
The SEC's beginners' guide describes the main financial statements:
- Income statement: revenue, expenses and the bottom line, net income or loss, over a period. It also reports earnings per share.
- Balance sheet: what the company owns (assets) and owes (liabilities) at a point in time; the difference is shareholders' equity.
- Cash flow statement: cash coming in and going out. The guide's key point: an income statement can tell you whether a company made a profit, but a cash flow statement tells you whether it generated cash.
Read them together: comparing them shows things no single statement does, such as a profit that is not matched by cash coming in.
A reading order for a 10-K
Investor.gov walks through the 10-K item by item. A practical order:
- Item 1, Business. What the company sells and where. Investor.gov calls this a good place to start.
- Item 1A, Risk Factors. The most significant risks, generally listed in order of importance.
- Item 7, MD&A. Management's discussion and analysis: management's own account of results, liquidity, known trends and uncertainties, and the critical accounting judgments behind the numbers.
- Item 8, Financial Statements. The audited statements and, crucially, the notes that explain them, plus the auditor's report. Investor.gov advises looking carefully at any auditor's report that is not an unqualified opinion.
- Item 3, Legal Proceedings, and Item 9, where a change of accountants and any disagreements are disclosed, which many investors view as a red flag.
Non-GAAP numbers
US companies must present their financial statements under Generally Accepted Accounting Principles (GAAP). Companies may also present adjusted, "non-GAAP" figures that leave out some items. Investor.gov explains that this is permitted, but companies must show how the non-GAAP measure differs from the most comparable GAAP measure, and it is up to investors to decide how much weight to give them. Find the reconciliation table and see what was excluded and why.
Questions to ask of any report
- Did revenue grow, and is growth coming from the core business?
- Are margins (profit as a share of revenue) rising or falling?
- Does operating cash flow roughly track net income?
- How has debt changed?
- What did management say about the outlook, and what new risks appear?
- How do the results compare with the same quarter last year? Investor.gov notes that Item 1 may describe seasonal factors, and for a seasonal business the previous quarter is a weaker comparison.
FINRA suggests comparing ratios such as the P/E ratio with the market as a whole and with the company's industry, since average ratios can vary significantly across industries. Reading reports is the core of fundamental analysis; technical versus fundamental analysis compares it with the chart-based approach.
Learn to Trade Stocks Beginner covers the basics of ownership and markets before you practise with a virtual balance. It is one of our education apps; the investing basics hub has the related guides.
Good to know
Frequently asked questions
What is the difference between a 10-K and a 10-Q?
Where can I find a company's earnings report?
Which parts of a 10-K should I read first?
Should I trust non-GAAP numbers?
Sources
- How to Read a 10-K/10-Q (opens in a new tab)Investor.gov, U.S. Securities and Exchange Commission — accessed
- How to Read an 8-K (opens in a new tab)Investor.gov, U.S. Securities and Exchange Commission — accessed
- Beginners' Guide to Financial Statements (opens in a new tab)U.S. Securities and Exchange Commission — accessed
- Evaluating Stocks (opens in a new tab)FINRA — accessed
- Extended-Hours Trading: Know the Risks (opens in a new tab)FINRA — accessed
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