How to Analyze an Annual Report (10-K)

The 10-K is a goldmine of insights into a company's business and industry

In this series, I’ll dive deep into how to analyze a 10-K and assess a company's financial position. Here are the articles in this series:

1. Analyze 10-K (this post)

2. Income Statement

3. Cash Flow Statement

4. Balance Sheet Statement

What is a 10-K?

The 10-K is an annual report that publicly traded companies are legally required to file with the Securities and Exchange Commission (SEC). You will learn in a detailed account, provided by the company, about its history, organization structure, Financial statements & performance, business operations, risks, future guidance, and so on.

Why is it important?

If you're looking to follow or invest in a U.S. public company, the annual report on Form 10-K is a valuable resource. It provides a comprehensive overview of the company’s business, executive compensation plan, risks, and financial and operating performance over the fiscal year. Most importantly, it includes management’s perspective on the company’s results, industry, and key business drivers. As an investor, understanding what the executives who have the most insight into the business are saying is crucial for making informed decisions.

In this article, I’ll use Old Dominion Freight Line’s (ODFL) 10-K as a reference example. Additionally, I recommend checking out my recent analysis of ODFL after reading this article—it will help reinforce key concepts and provide a practical application of what we discuss here.

Where do you find a 10-K?

Every Public Company’s website has to “Investor Relations” page where they post all information about the Company information, SEC filings, stock data & Corporate Governance.

To access ODFL’s 10-K click on this link.

Structure of a 10-K

Now, let’s dive into how 10-Ks are structured. The great thing about 10-K reports is that they all follow the same standardized format set by the SEC, making it easier for investors to analyze and compare different companies.

So the more 10-K’s you read, the more familiar you get and the faster you’ll get at it.

The standard 10-K structure looks like this:

• Business: Provides an overview of the company’s core operations, including its products and services. This section explains how the company generates revenue.

• Risk Factors: Highlights the key risks the company faces, typically ranked by significance. Understanding these risks helps investors assess potential challenges.

• Financial Statements: Offers detailed financial data, including income statements, balance sheets, and cash flow statements, giving a clear picture of the company’s financial health.

• Management Discussion & Analysis (MD&A): Presents management’s perspective on the company’s performance over the past fiscal year, including key drivers of growth, challenges, and future outlook.

Source: 10-K ODFL

1. Business

This section outlines the company's core products and services, making it a great starting point to understand how the business generates revenue.

Investing in companies whose business models are simple is very important, if you don’t fully grasp the business model or is complex it’s often best to move on. Do not waste time understanding a business if the company cannot explain it in simple terms themselves.

You can typically find the business segment details at the beginning of the 10-K

2. Risk

In this section, the company outlines the risks it anticipates facing, ranked in order of importance from highest to lowest. This helps investors understand the most critical challenges that could impact the business.

I would focus on this section, as this will help us understand how management is managing the critical risks.

3. Financial Statements

This is one of the most important sections in 10-K as this provides how efficiently the business is run by management.

As an Investor, we should be looking for profitable (high margins), a healthy balance sheet & how the company is reinvesting its profits (tells about future growth)

A 10-K includes three key financial statements:

• Balance Sheet – Shows what a company owns (assets) and owes (liabilities). Look for companies with manageable debt.

• Income Statement – Tracks revenue and expenses over time. Profitable companies with strong revenue growth are ideal.

• Cash Flow Statement – Measures cash moving in and out of the business. Healthy companies generate positive cash flow.

As mentioned above, I will dive deeper into each of the financial statements in the next posts.

4. Management Discussion & Analysis (MD&A)

he MD&A goes beyond the raw numbers in financial statements, offering context and insights directly from leadership. It’s crucial for investors because it helps answer the "why" and "how" behind a company's financial results.

It is important to make sure management has a good reputation for being transparent and giving honest information. Even if I find an amazing company, I never invest in the company if management is not credible.

Even a great company cannot sustain under poor management.

I would read every line under this section.

That’s it for today!

Conclusion:

• If you are interested in a company I would start with a 10-K to better understand the company, industry, management, Risks, etc.

• After reading 10-K if you like the company and financials, before investing I recommend reading 10-K’s of all their competitors. This will give an idea of why you need to invest in the company you like vs the competitors.

• Investors’ relations website also provides additional information about the company, including presentations, and executive compensation plan (14-A).

About Me:

I am a self-taught investor who has read hundreds of books on investing and spends 40+ hours a week researching and analyzing stocks.

I did not come from a finance background, and it took me nearly 10 years from first learning about the stock market to finally making my first investment. Since tracking my performance, I have achieved a 40% compound annual growth rate (CAGR).

I created this platform to share my investing journey and help others navigate the stock market with confidence.

Let’s grow together. 🚀

Disclaimer: This post is for educational purposes only and should not be considered financial advice. Always do your research before making investment decisions.