Investigative Guide
Decoding Financial Filings
Corporate press releases are fiction. SEC filings are sworn statements under penalty of perjury. To understand a public company, you must read the footnotes.
1. The 10-K: The Annual Report
Ignore the glossy PDF sent to shareholders. Go to the SEC's EDGAR database and pull the raw 10-K. The most important sections are:
- Item 1A: Risk Factors. Companies must disclose what could destroy them. Look for sudden changes year-over-year. Did they suddenly add a risk factor about pending DOJ investigations?
- Item 3: Legal Proceedings. A log of lawsuits.
- Item 7: Management.s Discussion and Analysis (MD&A). How executives explain the numbers. Compare this to what they said on the earnings call.
2. The 8-K: Material Events
The 8-K is filed when something major happens between quarters. CEO resignations, massive acquisitions, or bankruptcy notices. The timing is crucial.
The "Friday Night Dump"
Companies routinely file negative 8-Ks (e.g., an executive firing for cause) at 5:00 PM on a Friday, hoping reporters have gone home. Always set EDGAR alerts for Friday evenings.
Frequently Asked Questions
- Where do I find executive compensation?
- Look for the DEF 14A (Proxy Statement). This lists exactly how much the CEO made, including stock options, private jet usage, and security details.
- What does a change in auditor mean?
- If a company files an 8-K dismissing their accounting firm (or the firm resigns), it is a massive red flag. It often precedes restatements or fraud investigations.