Welcome to our MoneyByRamey.com FAQ knowledge series. In today’s article, we’ll look to answer the question: “What is the difference between a 10-K and 10-Q?”
Publicly Traded Companies Need to File
Any company that is public, which means its shares are bought and sold on the open markets, needs to adhere to certain rules that privately held companies do not.
In exchange for access to massive amounts of capital through stock raises, publicly traded companies agree to abide by special rules and regulations. Which have been set up to protect everyday investors from nefarious activities.
Keep in mind that each country will have its own laws and regulations on filing periods, timing, and overall rules that companies must file.
Here in the US, every publicly traded company is required to file financial statements with the Securities and Exchange Commission, more commonly known as the SEC.
Currently, every publicly traded company in the United States is required to file financial statements four times per year – once every quarter and one audited statement every year.
Quarterly statements are referred to as a 10-Q while the annual statement is referred to as a 10-K. These filings, amongst many others, can be found via a company or ticker search on SEC.gov, or on the company’s website.
10-Q: Quarterly Statements
For the everyday investor, the 10-Qs are a very good source of information.
Here are some characteristics of the 10-Q:
- Typically unaudited, which means that an accounting firm has not gone through the financials in the same thorough fashion as it would with an audited set of financial statements. These statements will not be scrutinized by an external auditing firm.
- Produced once per quarter, which equates to 4x/yr. It contains backward looking information over the previous three month period. For an investor, this means you are always ‘behind the curve’ in the sense that the numbers you are looking at have taken place. And you are receiving an outdated report.
- Numbers can fluctuate more on quarterly financials due to irregular business seasons or accounting items. I have seen instances where the cash flow is negative due to a large build up of inventory. Likewise, other factor that is specific to the company’s timing. These quarter-to-quarter fluctuations are not necessarily a bad thing but rather represent the normal operations of the company. In most instances, the company’s numbers will normalize out over the course of the year. And be more represented on the 10-K.
What do I use the 10-Q for? For me, I use it in the same way that I use the 10-K; to obtain an up-to-date spread of the financials. I take the numbers presented in the 10-Q and input them into my proprietary investing calculator. From here, I begin to make the determination on whether or not this company is one that I want to deploy my hard-earned capital.
There is a caveat though; what this means for me as an investor is that, although I trust the financials, it doesn’t have the “golden stamp” of an auditor’s approval and analysis. With that being known, I typically ensure that I review the annual statements, because unlike the 10-Q, those will be fully audited.
10-K: Annual Statements
The 10-K annual statement is just that – a financial report which is filed on a yearly basis with the SEC.
Characteristics of 10-Ks
- 10-Ks are fully audited. For the investor, this means an outside firm has completed an audit and attested to the veracity of the financial statements. Through the auditing process, investors are able to get a clear picture and a better assurance of how the company is doing.
- The 10-K is more thorough in the amount and type of information. Therefore, investors are in a good spot if they routinely review company’s 10-K. And that will give the most comprehensive look into a stocks overall financial picture. Where 10-Qs can average 70-80 pages, often times 10-Ks are well over 150+.
- Yearly numbers offer a better picture into the company’s true financial performance. While one good or bad quarter could be an anomaly, it is difficult for the company to chalk up a year’s performance to the same.
I find that 10-K is a great place to gather information. The details are much more apparent, the numbers are a good representation of the company’s current operations. And the debt picture is typically offered in more detail.
In my investment picture, I will use both a 10-K and 10-Q in reviewing a company’s financials. It does help to know the difference in the documents to ensure that as investors, we know details on the information being presented.
Good luck and happy investing!