Investing in company shares is one of the common practices for generating passive income. However, to make a profit rather than a loss on your investment, you must evaluate the risks before purchasing shares. One effective way to accomplish this task is to study Form 10-K, which is required to be published by all public companies. They do this annually, so by looking at the company’s performance over time, you will understand whether it is worth investing in its shares.
Why Take the Time to Study the Form 10-K?
Many investors prefer to rely on the opinions of experts when placing investments. After seeing voluminous company reports of hundreds of pages, they think that they will simply get confused by all these numbers. However, you must remember that by buying shares of companies, you are risking your money, not the experts. Gullible novice investors can very quickly turn into investment fraud victims and lose their assets. A way out of this situation is possible thanks to the willingness to personally study financial analytics and credit assistance, which can be obtained at Payday Depot.
Therefore, to shorten the path to acquiring a positive investment experience, it is better to approach this responsibly from the very beginning. Moreover, to assess the risks of investing in shares of a particular company, you will need to study only a few key sections in 10-K.
Form 10-K for Company Performance Evaluation
By reviewing Form 10-K, you will see the company’s perspectives for growth, as well as its potential vulnerabilities. By comparing one and the other, you can assess your risks and make the right decision. And to make it easier for potential investors to understand the mass of numbers, all information is divided into 5 key blocks.
Business Description
The first section gives you an idea of the history of the company, its goals, products or services, etc. After reading this section, you can determine whether the company aligns with your goals and values.
Risk Factors
This section will show you what factors can negatively affect the success and viability of the company. This could be a new pandemic, a shortage of qualified personnel in the labor market, dependence on a narrow circle of parts suppliers, etc. All risks are listed from the most to the least significant ones. Thanks to them, you will be able to assess the likelihood of the expected negative events based on the other sources and make an informed decision.
Financial Statements
Although Form 10-K is filed to make an assessment of the most recent fiscal year, you will find a comparative estimate for the last 3 to 5 years. This section contains the following documents:
- Income statement;
- The balance sheet;
- Cash flow statement.
Management’s Discussion and Analysis
This section shows management’s assessment of the company’s success or failure over the past year.
Legal Proceedings
If the company has been involved in any legal proceedings over the past year, they will be displayed in this section. Read it carefully to see if the company is violating any of the values to which you are committed.
After reviewing the Form 10-K of a particular company, take a step further and compare it with the results of its competitors. This will show you how well its performance compares to other companies in the industry.
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