If you are interested in learning about how to research a company for investment purposes there are five essential documents you should read and analyze closely:
-
The 10k
If you ask anyone how to research a company, they will point you to the 10k, which is filed yearly with the Securities and Exchange Commission (SEC) and is without double the single most important research document available to investors. It is free to the public. The US government forces public companies to prepare it, so you, the owner, can be aware of the company’s finances, risks, opportunities, and current operations.
If you want to learn about a business’s financial status, the 10K will show you very quickly how much money a company made, its cash flows, and the amount of debt it carries. The income statement, balance sheet and cash flow statement are the key documents that you will review.
-
The 10Q
This is a shorter version of the 10K filed quarterly (four times a year). It’s another source that shows you how to research a company’s opportunities as well as uncover their risks (rather than waiting a whole year only to find out the company is in litigation). It is also a place that a company will bury some important shareholder information – like the fact that they are going to soon change their dividend policy – so read the 10Q before you invest and read them each quarter.
-
Proxy statement
The proxy statement provides you with an explanation of issues that the company’s stockholders need to vote on such as changes to the corporate by-laws, mergers, spin-offs, or other corporate actions. It is essentially a voting card (proxy) that you fill out as an owner of the company. In terms of how to research the company’s leaders, this document serves as a great tool since it provides information about the Board of Directors and gives you an insight into management pay levels.
-
The most recent annual report
The annual report is a shorter version of the 10K that often comes with pictures, glossy color pages, and a nice and positive letter from the Chairman/CEO. Some annual reports are quite detailed and informative, whereas others are lacking in-depth information. The annual report provides financial data for the year, commenting on what aspects of the company did well and which aspects of the business lagged. If you want to know how to research a company’s expected performance, this document gives you a documented outlook provided by the Chairman/CEO. You should be aware that the directors of the company will try to present the company in best light possible without violating any SEC regulations.
-
Research analyst statistics
Subscription companies like Morningstar, S&P, and Moody’s offer a statistical type of report which shows regular statistics about the company. Each subscription company has their specialty. For example, Moody's Investors Service provides international financial research on bonds issued by commercial and government entities. Morningstar provides stock market research analysis on equities and mutual funds. Standard & Poor's (S&P) Equity Research provides unbiased equity analysis and opinion on stocks and exchange traded products around the world.
These five document sources are great if you want to know how to research a company. It’s the absolute minimum of what you should read prior to investing in a company. You may also want to get a broader view by reading press articles about that company and its competitors. You can also keep track of your stock on a daily or weekly basis through Bloomberg or Yahoo Finance, which can also alert you to significant changes within the company or the performance.