My Simple Process for Reading 10-Ks
How to Really Understand a Business: Start With the 10-K and Proxy
Most people hate reading filings. I get it. But without them, you simply can’t understand a business. Once a company passes my quick mental screener, I go into the filings, and this is how I read financials.
Business Section
This section tells you the basics you actually need:
What does this business do? What problem is it solving? Who are the customers, and why do they choose this company over someone else?
You also get the story, how the company started, what it focused on early, how the product evolved.
Most important of all, this is where you get a real look at the full product and service mix. I try to read this part like I’m the owner:
the customers, the product lines, the services, the history, the future opportunity — everything.
You also get a first look at the competitive landscape. Once you understand who they’re fighting with and how, you can start scanning those competitors too. That’s when the whole industry begins to make sense.
Management’s Discussion (MD&A)
This part is important because it lets you see the company through management’s eyes.
Here, they talk about the business, the industry, the risks, the opportunities, and what they’re trying to achieve. You can often tell a lot about management by how they describe the goals: are they trying to capture market share? Increase volumes? Improve margins? Cut costs? Focus on efficiency? All of that shows up here.
A useful trick is to compare the current MD&A to past ones. You start to see whether management stays consistent with its goals and whether they actually deliver on the things they said before.
They also walk through financial highlights — revenue, margins, cash flows, capital spending, and how they think about returning cash to shareholders through dividends or buybacks. It’s basically their explanation of “what happened” and “why it happened.”
This section matters a lot because it shows the reasons behind the financial performance. If margins went up, they should tell you why. If revenue slowed or accelerated, there should be an explanation. If one segment is growing faster than the rest, they will usually talk about what’s driving it.
Good management is transparent here. They don’t hide the tough parts, and they don’t pretend everything is perfect. You want people who give you the full picture, especially when it comes to risks and challenges ahead.
Risk Factors
You need a real understanding of the risks. Every industry has its weak points. Every company has a few things that can break the story. And if you don’t understand what can go wrong and why it would go wrong, you’re not really analysing anything.
Take a simple example: if an insurer gets 70–90% of its revenue from the ACA exchanges, one policy change can hit almost the entire business. Some companies rely so heavily on a single customer that if that customer leaves, years of progress can disappear overnight — at that point, you’re effectively analysing a completely different company than the one you thought you owned.
Others depend on one manufacturing country or a single critical supplier, so a geopolitical issue can shut everything down. In pharma, it’s common to see a business where one drug drives most of the revenue. And in fintech, you often find models that only work because of one bank partner, if that relationship ends, the company suddenly has no product.
Financials
After the business section and the MD&A, I move on to the financials. I start with the income statement, but I treat it as only the first step. It shows revenue and profit, but it doesn’t explain everything that’s happening underneath. So while reading it, I keep an eye on things like R&D spending, marketing, depreciation, and interest payments. These small details tell you how the company is trying to grow and how much pressure debt is putting on the bottom line.
But a big caveat here: the income statement is just one year. To really understand what’s going on, you have to look at a few years together. Revenue can fluctuate, margins can move around, and profits can look good one year and weak the next. Sometimes these swings are normal; sometimes they hint at deeper issues. That’s why I move next to the balance sheet.
The balance sheet shows the company’s actual financial position. You can see how debt has changed over time — is it rising, falling, or staying stable? You can see if cash is building up or disappearing. And you can see retained earnings: are they growing each year or barely moving? This part matters a lot because it shows whether the business is getting stronger or if it’s slowly stretching itself. Buffett focuses heavily on this because most risk shows up here first.
Then I read the cash flow statement, which tells you what actually happened in cash. Here you can see if earnings turn into real money or if the business is constantly tied up in working capital. And this is where more caveats show up. For example, if inventory keeps building up, that might mean demand is slowing or the company overestimated sales. If customers are taking longer to pay, that can tighten cash. If the business runs with negative working capital — like some retailers or payment companies — you can see how much that structure helps or hurts the business.
The cash flow statement also shows whether capex is being spent to maintain the business or to grow it, how much interest is being paid, and how much stock-based compensation is quietly entering the picture.
When you put all three statements together, the picture becomes clearer. The income statement shows performance. The balance sheet shows financial health. The cash flow statement shows whether the business generates dependable cash. Seeing how revenue, profits, debt, cash, and working capital move over time tells you far more than looking at a single year.
Read the Notes
They look boring, but this is where a lot of important detail sits – the kind you’ll never see on a summary slide or a stock screener.
In the notes, I want to understand how things actually work. For debt, that means: what are the terms, is it a bank loan or bonds, is there a revolving credit line, when does it mature, and how sensitive is it to interest rates? Fixed-rate debt and floating-rate debt behave very differently when rates move. You can also see whether they have covenants that might become a problem if earnings drop.
The notes also explain accounting choices: how they recognise revenue, how they treat leases, how they handle impairments. You often find details on customer and supplier concentration there too — for example, whether one customer accounts for 20–30% of revenue, or whether the company relies heavily on a single supplier or country.
There can also be sections on legal issues, guarantees, off-balance sheet items, and segment information. None of this looks exciting, but it all helps you see what’s really behind the headline numbers. Read the notes and the business becomes much clearer.
Proxy, Ownership, and Incentives
At the end, I always check the proxy. It shows who actually owns the company and how management is paid. Insider ownership tells you whether they think like owners, and the compensation plan tells you what they’re really prioritising.
I look at what the incentives actually are. Are they being rewarded purely on short-term profit or EPS growth? If so, they might be tempted to do things that look good now but hurt later, for example, using debt to buy back stock at high prices just to increase per-share profit. Or cutting R&D and long-term investment to reduce expenses.
If incentives are tied to long-term value, things like per-share performance over several years, returns on capital, and shareholder returns over time, that usually points to a different mindset. I also pay attention to how much stock management owns, how long their equity awards vest for, and whether they think like owners or just employees.
Once you understand how management gets rewarded, you have a much better idea of how they are likely to behave with your capital.
In Short
Reading filings isn’t easy. They’re long, they’re technical, and half the information in there isn’t even useful. But when you go through them in a structured way, they start to tell you the full story of the business, how it makes money, where its strengths are, where the real growth opportunities might be, and what the main risks look like. You also see how management thinks about the financials, how they talk about the future, and what their incentives and ownership actually are. And the notes give you details you’d never find anywhere else.
There’s no simple shortcut for any of this. But with this approach, the whole thing becomes a lot easier, and you end up with a much clearer understanding of the business you’re studying.
This is just how I read filings and understand businesses. It’s not advice, just my personal approach and the way I think about companies. Always do your own work.