A. All public companies must file form 10-K, the annual report with the SEC.
Where to find 10-K?
You can find a firm's latest 10-K at its investor relations section of the company website. You can also search the SEC's Edgar database.
The following sections within 10-K are where you need to pay special attention to:
Business
This section provides an overview of the company, it will tell you what the company does, how it makes money, who are its competitors, and where it stands in its industry.
Risk Factors
The company must describe any issue that could adversely affect its business. Look for unusual ones, such as a single product or customer accounting for a big share of business.
Selected Financial Data
This table of key performance data - total revenue and net profit, among other figures - in each of the past 5 years shows the firm's sales and earnings trends.
Management's Discussion and Analysis
This section highlights business results over the past year compared with the previous one. The writing can be dry, but look for important information and analysis here.
Financial Statements
The auditor's report is a declaration from an accounting firm that the 10-K fairly presents the company's current financial position. "Critical Audit Matters" could point to potential problems.
The Income Statement is a report of sales, expenses, and profits in each of the past 3 years. Look for a rising trend and focus on net earnings rather than earnings per share, in part because share buybacks.
The Balance Sheet is a snapshot of the company's financial health. It shows the firm's assets and liabilities. Look for if retained earnings rising steadily or the trend of long term debt. Good companies generate enough profits per year to cover their long term debt within 3 to 5 years.