examine documents

Investors: Mind your K’s and Q’s

The Company is almost insolvent but management says everything is fine on earnings call. What’s going on and who should you trust?

The 10-K and 10-Q filings are among the most important and powerful tools for a Value Investor today. This is especially true when coupled with GAAP reporting. If you’ve ever wondered why, or even what the difference is, you’ve come to the right place.

What is a 10-K report and what is its purpose?

A 10-K filing is an annual financial statement that all publicly traded companies in the U.S. are required to file with the Securities and Exchange Commission (SEC).

It’s required as part of the Securities Exchange Act of 1934 – a set of regulations passed after the 1929 crash of the stock market. It’s meant to prevent companies from lying about their financial positions, but more on that later. 

The filing deadline for the 10-K is due 90 days after the end of the fiscal year of that company. The form 10-K is more extensive and comprehensive than the 10-Q, owing to the fact that the 10-Q focuses only on the most recent financial quarter, whereas the focus of the 10-K is on the entire year.

The entire purpose of the 10-K filing is to provide investors with a good picture of where the company is heading.

What is included in a 10-K report?

A 10-K report, or filing, may include investor public relations material from the company’s annual report to investors. It may also include notes and commentary from the CEO or the board, but why you should care about a company’s 10-K is for what it is required to contain. 


  • Balance sheet
  • Income statement
  • Cash flow statement
  • Statement of stockholder’s equity

The 10-K report should include disclosures of any major changes made since the last financial filing, such as changing from one accounting method to another, or a discussion of a contingent liability such as an ongoing litigation. 

The SEC requires that the company also provide relevant financial data from the exact same filing time during the past year. This makes comparing same-period data a breeze.

Is an annual report and 10-K the same thing?

The short answer, no.

An annual report usually contains much of the same information (or should), but it’s more of a marketing presentation than the 10-K.

The 10-K is an official filing required by law and has much more strict guidelines on what information must be included and how it must be organized.

How do I find a company’s 10-K?

The best place to find a publicly traded company’s 10-K filing is from the SEC itself. By performing the company search, you will get a list of all their SEC filings, noot just 10-K and 10-Q.

What is the difference between a 10-K and a 10-Q?

The Q in 10-Q denotes that it is the Quarterly version of a 10-K. That is, it is meant to fill the same purpose as the 10-K but for the given fiscal quarter rather than a complete year.

What are the 10-Q and 10-K used to report?

Both documents are required by the SEC and are used to report financial details about publicly traded companies. The 10-Q is a quarterly report and the 10-K is for an entire fiscal year.

What GAAP is and why it’s important

GAAP stands for: Generally Accepted Accounting Principles. They are “set of accounting principles, standards, and procedures issued by the Financial Accounting Standards Board (FASB).” [source]

Publicly traded companies in the U.S. must follow and disclose GAAP measures when their accountants complete the company financial statements.

It’s important because GAAP figures, as presented in the financial statements in a 10-K filing (ex: Balance Sheet, Income Statement, Cash Flow statement) are the kinds of figures that people go to jail for if they are falsified. In short:

GAAP is where the truth is, non-GAAP (pro-forma accounting, and CEO comments) is where the executive team can control the message.

This question from  u/thesonofnarcs in the r/ValueInvesting subreddit highlights the importance of GAAP and the 10-K filing:

“I’m wondering what you guys do/think in these situations.

I spent the last several days pouring over the balance sheets of a couple casinos and resorts.

These particular companies are nearly insolvent: Zero working capital, mountains of debt, not enough cash flow/income to make interest payments, etc.

I then started reading over the earnings calls transcripts and actually got kind of angry reading what they said. They wouldn’t give any specifics at all and basically just spun everything so it was positive.

So, who/what do you trust more – the balance sheet or what management says?”


The correct answer to this question:  Always trust the balance sheet (or GAAP filings, in general) over what the management says. If what the management says happens to coincide with the filings, then that’s a definite bonus.

My name is Michael. My background is in technology, not finance.

What this means is that my head isn’t filled with high-flying, new-economy financial theory nonsense that universities pump out these days to justify the absurdity of wall street.

What I lack in letters following my name I make up for in experience. 20 years of active investing experience – counting 3 (as of March, 2020) bubbles and subsequent busts, to be exact.


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