HapiMoney

I’d like to start a little series on the important financial statements that every public company has to issue. This will cover a brief overview of the annual report (10k) as well as 3 of the most important financial statements that you should look at before deciding to invest in a company. These statements are the Income Statement, the Balance Sheet and the Statement of Cashflows.

To start the series, I’d like to cover what a 10k is and what you can find in them. Every publicly traded company is legally required by the SEC (Securities  and Exchange Commission) to release a report of their business each year called a 10k. These reports are, in theory, independently audited by an accounting firm to verify the authenticity of the numbers. And these reports are CRITICAL for evaluating any investment.

To find the 10k or annual report of a company that you are researching, head over to the SEC’s EDGAR platform. You can search for your company and find the most recent filing. To see what the 10k looks like for Google, click here. It ain’t pretty, but it has more relevant information that you’ll know what to do with.

The Structure

Every 10k is laid out in essentially the same format – with small variances here and there.

1. Title page – letting you know what company you are looking at and some basic legal information.
2. Table of Contents – I think you should get this without explanation
3. Part 1 – Basic Company information: what the company does, risks it sees in it’s business, the property it owns for it’s business, and any legal proceedings which could adversely affect the company.
4. Part 2 – the financials (and where we will spend the bulk of our time).
5. Part 3 – An overview of who’s running the company and how they get paid (yes, you can see their salaries and any stock grants).
6. Part 4 – Residual information

I highly recommend sitting down with an annual report before deciding to invest in any company. It will take a few hours to understand, but you’ll know much more about the company, and get a better feel for what it does.  Don’t worry about the financial information yet, we’ll break it down soon enough. Just try understanding the business as a whole, their risks and anything else you can glean that might be important.

And you won’t be alone in your endeavor, slowly slogging through Annual Reports – it’s been noted that legendary investor Warren Buffet almost exclusively relies on them before making an investment decision. And as the WSJ notes, they also help him avoid bad investment decisions.