Here’s an informative Twitter thread from an apparent “Main Street Investor” about how to read Form 10-Ks. Approaches to Form 10-K analysis can vary by type of investor – but the disclosure sections mentioned here are also important to larger institutional investors and asset managers (and they also tend to draw comments during Staff disclosure reviews).
Don’t let the digs at “legal filler” get you down – there’s insight that we lowly lawyers can glean from what many investors are looking at:
1. Business Section – the part that tells the company’s story
2. Risk Factors – especially company & industry-specific
3. MD&A – the whole thing
4. Notes to Financials – John pointed out that even though lawyers aren’t accountants, it’s worth focusing on accounting policies in the notes to financials – and asking questions if they appear to differ from peers’
While the Form 10-K process can sometimes suffer from “too many cooks in the kitchen,” anyone who’s working on it should know which parts draw the most eyeballs and make sure to read those through. Those are also the parts of your peers’ Form 10-Ks that you should keep tabs on.
If anything crazy jumps out (based on your understanding of your company’s situation or in comparison to what peers are saying), you can ask about it. You also want to make sure that the portions of the document that you’re directly involved with are consistent with the “main parts” of the document.
I’d also like to think that securities lawyers play a pretty big role with many of these sections, since SEC rules drive the disclosures – as well as Staff disclosure reviews & enforcement actions. Check out the January-February 2018 issue of The Corporate Counsel newsletter for a very practical nuts & bolts approach on drafting risk factors. Our handbooks are also filled with essential info – including on business disclosures and the MD&A.
– Liz Dunshee