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96793672.5 A Tour of the Form 10-K: The Structure
The following figure shows
a sample of the 10-K items as reported by Amazon.com.
We will highlight some of the important Items from an
accounting and financial analyst perspective. The structure is
mandated by the SEC for publicly held corporations.
As a result, the same format applies to any public
corporation:
From the point of view of
Financial Statement Analysis and Valuation, the following items are
important:
·
Item 1 describes the
business model and strategy.
We described these in the introduction, and will return to
this in Chapter 3.
o
Item 1A identifies all the
major risks faced by the company.
Unfortunately, it does not indicate the likelihood of the
risks but it does provide an exhaustive list, given potential
regulatory penalties faced by management today.
·
Item 7 contains information
that cannot be found in the financial statements.
This item is intended to cover favorable and unfavorable
trends or events relating to liquidity, capital expenditures,
financing and operations.
We will give examples of this below
·
Item 8 contains the four
major statements: the income statement, the balance sheet, the
statement of shareholder’s equity, and the cash flow statement.
We describe these in detail in the next few sections of this
chapter.
·
Item 9 contains the
Auditor’s Report. This
is a statement from the independent auditors on whether or not the
financial statements “present fairly, in all material respects, the
financial position” of the company.
o
An
unqualified report states that the major financial statements are
fairly presented in all material respects and are in compliance with
GAAP.
o
A
qualified report which
uses the language that except for certain items, the report is
unqualified.
o
An
adverse opinion is given if departures from GAAP are numerous.
o
A
disclaimer of opinion can be issued which effectively means the
auditor is unable to form an opinion.
o
An example of an auditor’s
report is:
