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How to read a 10k like a pro 🧐 Here’s a primer on what metrics professional analysts focus on (using $MA as an example:)
1: Business overview. Understand everything about how the business works, like: - What is the business model? - Who are the key suppliers, distributors, partners? - Revenue quality?(Recurring? Recession proof?) - What is the revenue split from products / services?
2: Risk Factors Most of these are standard. Identify the risks that are company-specific and make sure you understand them.
3: Unresolved Staff Comments This is where management addresses comments it received from the SEC on previously filed reports. This section is empty 99% of the time. If it has data, read it!
4: Management's Discussion & Analysis of Financial Conditions READ THIS PART! It contains detailed explanations on: - Revenue trends & causes (if decelerating, why?) - Near-term focus - Key metrics to watch - Competitive moat - GAAP vs Non-GAAP - Biggest risks - Guidance
5A: Financial Statement Summary Income Statement Look for: - Revenue Growth - Margins (gross, operating, net) - One-time expenses - Net Income - Shares Outstanding - Discontinued operations
5B: Balance Sheet Look for: - Changes in cash - Changes in receivables - Liabilities - Rising debt/equity - Falling interest coverage - Big change in cash w/out corporate action - Goodwill changes
5C: Cash Flow Statement Look for: - Changes in working capital - Rising accounts receivable - Stock-based compensation - Negative CFFO (from operations) - Free Cash Flow vs Net Income - Stock repurchase - Debt issuance / repayment
5D: Footnotes! Aka the fine print Look for: - Revenue recognition explained - GAAP vs non-GAAP - Operating leases - Legal actions - Debt maturities - Errors in previous filings
If you're enjoying this thread, you'll love my free course on how to read financial statements. In 5 days, I'll break down the 3 statements in simple terms. Click here to get started (its free)! <a target="_blank" href="https://financialstatements.school/" color="blue">financialstatements.school</a>
6A: Executive Compensation Some companies list it in their annual report. Others only list it in the proxy statement (DEF 14A). $MA forces you to look at the proxy statement
6B: Executive Compensation CEO's goal is to maximize their compensation, so make sure their incentives align with yours! Management is most commonly incentivized by: - Revenue - EPS - Operating income
7: Beneficial Ownership Look for: - High % ownership by insider - Insider buying -insider sales
With some practice, you can analyze an annual report in less than an hour I hope this thread will help you invest better. If you want to share this with your followers, retweet the first tweet: <a target="_blank" href="https://twitter.com/BrianFeroldi/status/1723691489065079213" color="blue">x.com/BrianFeroldi/s…</a>