How to Read a 10-K Annual Report: Section by Section

A 10-K is the audited annual report a U.S. public company files with the SEC. To read one efficiently, start with Item 1 (the business), then Item 1A (risk factors), Item 7 (management's discussion), and Item 8 (financial statements and the auditor's report), and finish with the notes. Most other items can be skimmed.

You want to understand a company before you buy its stock, or you already own it and the price just moved. The 10-K is the most complete picture a company publishes, but it can run past 100 pages. You do not need to read all of it. You need to know which parts carry the information and what to compare them against.

What is a 10-K and why does it matter?

A 10-K is the company's official yearly disclosure, and it is more reliable than the glossy material sent to shareholders. According to Investor.gov's Form 10-K entry, it "provides a comprehensive overview of the company's business and financial condition and includes audited financial statements." Investor.gov also points out that the 10-K is distinct from the "annual report to shareholders," which is often a marketing piece.

The SEC adds that a company's CEO and CFO must personally certify the financial and certain other information in each 10-K, as described on its Exchange Act reporting page. That certification is one reason the 10-K is the document analysts quote.

	10-K	Annual report to shareholders	10-Q
Filed with SEC	Yes	Not as a separate form	Yes
Financial statements	Audited	Usually the same, plus marketing	Unaudited
Frequency	Once a year	Once a year	Three times a year
Best for	Full understanding of the business	Management's message	Quarter-to-quarter changes

For the quarterly version, see our 15-minute method for reading a 10-Q.

How is a 10-K organized?

Every 10-K uses the same four parts and item numbers, so you can jump straight to what you need.

Part I: the business and its risks

Item 1 (Business), Item 1A (Risk Factors), Item 1B (Unresolved Staff Comments), Item 1C (Cybersecurity), Item 2 (Properties), Item 3 (Legal Proceedings) and Item 4 (Mine Safety Disclosures).

Part II: the numbers

Item 5 (Market for the stock and buybacks), Item 7 (Management's Discussion and Analysis), Item 7A (Market risk), Item 8 (Financial Statements), Item 9 (Changes in accountants) and Item 9A (Controls and Procedures).

Part III: people and pay

Items 10 to 14 cover directors, executive compensation, ownership and related-party dealings. Many companies incorporate these by reference from their proxy statement.

Part IV: exhibits

Item 15 lists exhibits such as material contracts, debt agreements and subsidiary lists.

In what order should you read a 10-K?

Read in this order rather than front to back. Each step answers one question.

Item 1, Business (15 minutes). How does the company make money, who are its customers, and who are its competitors? If you cannot explain the business in two sentences after this, stop and reread.
Item 1A, Risk Factors (10 minutes). Skim for risks specific to this company, not generic ones. Compare with last year's 10-K: new or rewritten risk factors are the most valuable sentences in this section.
Item 7, MD&A (20 minutes). Management explains why revenue, margins and cash changed. Look for specific causes and numbers rather than phrases like "challenging environment."
Item 8, Financial Statements (20 minutes). Read the income statement, balance sheet and cash flow statement for three years side by side. Then read the auditor's report at the top of Item 8.
The notes (as needed). Go to the notes on revenue recognition, debt, leases and contingencies, and anything tied to a number that surprised you.

What should you look for in the financial statements?

Trends across years tell you more than any single figure. A simple worked example shows the idea.

Suppose a company reports revenue of $800 million, $900 million and $1,000 million over three years, so sales grew 12.5% and then about 11%. Over the same years, accounts receivable went from $100 million to $140 million to $200 million, up 40% and then about 43%. Receivables are growing three to four times faster than sales. That can mean customers are paying more slowly or sales are being booked early, and it is a reason to read the revenue note and the MD&A discussion of collections.

Other comparisons worth making:

Net income vs operating cash flow. Profits that never turn into cash need explaining.
Debt maturities. The debt note shows when borrowings come due. A large maturity in the next year matters more when cash is thin.
Share count. Rising diluted shares mean your slice of the company is shrinking.

What are the red flags in a 10-K?

Some warnings sit in the less-read items. Check these every time.

Auditor's opinion. A clean, "unqualified" opinion is normal. Any paragraph about "substantial doubt" over the company's ability to continue as a going concern is serious.
Item 9, change in accountants. A switch of auditors, especially after a disagreement, deserves a look at the related 8-K.
Item 9A, material weakness. A reported material weakness in internal controls means the numbers deserve extra caution.
Related-party transactions. Deals between the company and its executives or their families, usually in Part III or the notes.
Item 3, new legal proceedings. A new lawsuit or investigation can matter more than a quarter's earnings.

Companies also file 8-Ks for major events between annual reports, often within four business days of the event, according to the SEC, so check for recent 8-Ks before relying on a 10-K that is several months old.

Frequently asked questions

Where can I find a company's 10-K?

Search the company on the SEC's EDGAR database and filter by filing type "10-K," as Investor.gov describes. Most companies also link their 10-K from the investor relations page of their website.

How long does it take to read a 10-K?

Reading every page can take most of a day. Following the reading order above, most investors can cover the important sections in about an hour and a half, then go deeper only where something looks off.

What is the most important part of a 10-K?

For most investors it is Item 7 (MD&A) read together with Item 8 (financial statements), because MD&A explains the numbers and the statements let you check that explanation. Risk factors in Item 1A come a close second.

Do private companies file 10-Ks?

Generally no. 10-Ks are filed by SEC reporting companies, mainly public ones. Private offerings instead provide information through documents such as a private placement memorandum, which our guide to private placements explains.