The filing before the numbers
Fennick Outdoor's annual report arrives: 180 pages for a company that sells tents and hiking boots. You have an afternoon. Do not start with the numbers. Start with the coordinates: which company, which fiscal year-end, which currency, which units. Fennick's year ends January 31 and its tables are "in thousands, except per-share amounts". Everything you copy inherits those facts.
The Form 10-K is the annual filing for a US domestic public company. It holds the business description, risk factors, management's discussion and analysis (MD&A), the audited financial statements with their notes, and other required items. The 10-Q covers each of the first three fiscal quarters, usually with unaudited interim statements. The 8-K reports specified current events as they happen. An earnings release often accompanies a filing; it is not the report.
- Annual, audited
- Business, risks, MD&A, statements, notes
- The full record
- Quarters one to three
- Usually unaudited interim statements
- Thinner notes
- Specified current events
- Deals, departures, results, defaults
- Filed as they happen
- Foreign private issuers
- Annual report and furnished updates
- May not use US GAAP
A foreign private issuer files a 20-F each year and furnishes 6-Ks in between, and its framework may be IFRS or something else. An SEC filing does not mean US GAAP.
A repeatable reading pass
Read the business description first, so you know what earns the revenue. Then the three statements, the Snapshot (balance sheet), the Scorecard (income statement) and the Cash Ledger (cash flow statement), with their notes. Then the auditor's report and MD&A. Risk factors and commitments explain why a pretty ratio deserves caution. Then ask what changed: revenue, operating margin, cash generation and capital employed. Each change points at a note: revenue policy, acquisition contributions, debt, segments, tax.
- 1Fix the coordinatesCompany, year-end, currency, units
- 2Read the businessWhat earns the revenue
- 3Statements and notesAll three lenses, plus the policies behind them
- 4Auditor's report and MD&AScope of assurance, management's story
- 5Ask what changedRevenue, margin, cash, capital employed
- 6Sort the evidenceFact, management's explanation, your inference
The last step is this stage's question, what is the evidence? Keep established fact, management's explanation and your own inference apart. The filing establishes some facts, management says what explains them, and the rest is what you infer. Fennick's MD&A says demand is strong; the revenue note says $40m of growth came from a business bought in July. Only one of those is a fact you can check.
Source discipline
Every extracted figure travels with its period, its unit, its scope and its exact location. Fennick's segment table reads "2,400" under that "in thousands" header. That is 2,400 × 1,000 = $2,400,000, or $2.4 million. Copy the bare 2,400 into a model built in millions and you are a thousand times too big.
A Fennick table shows revenue of 3,150 under the header "in thousands of dollars". What is that in millions?