The Form 10-K is considered to be an annual filling that is legally expected to be filled and sent to the Security and Exchange Commission. The form usually contains almost all the things that concern the business and which investors are interested in before buying and selling the stock of the company or investing in the corporate bonds of a firm. The information that is specifically included in the 10-K includes the organizational structure, subsidiaries, holdings, earnings per share, equity, and the company’s history. 10-K has a number of purposes as indicated below;
The Purpose of a Company’s 10-K
Companies are often to file and send the form 10-K to the Security and Exchange Commission on an annual basis. The purpose of form 10-k includes having a detailed explanation of the operations of the company, the markets that it operates in, and how it makes money to better understand the business. Another main purpose of the form is to disclose the risks that are faced by companies through the provision of risk disclosures ( Kimmel, 2008) .
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The purpose of form 10-K also includes providing financial information to the relevant stakeholders especially to investors so that they can make the right decisions. It is vital to note that the financial statements are considered to be the most vital part of the form because it helps in analyzing the finances of the company.
Interpretation of the Financial Strength of the Firm
The financial strength of a company is often measured using three key areas including liquidity, solvency, and profitability. The liquidity of the company looks at the ability of the firm to easily convert assets into cash. The liquidity strategy includes making sure that there is sufficient liquidity available with high levels of certainty through the business cycle through the process of generating cash from the operations and maintaining the access to other sources of funding. From the information on the liquidity of the company in the form 10-K, it is clear that the company is liquid.
Profitability usually measures the ability of the company to generate positive net income or profits for a certain level of investment or sales. The profits of the company have decreased from 2010 to 2012 which is a concern to the investors especially the shareholders. It is worth noting that a decrease in the profits can indicate a decrease in the returns to the investors. It further indicates a decrease in the financial strength of the company in terms of generating profits.
The debts of the company remain relatively remains the same as there an increase in the equity which is a good indication that the company is starting to rely on equity financing as opposed to debt financing. Equity financing provides positive financial status as it is less expensive as compared to debt financing. Investors often look at the equity and from the form 10-K, it is evident that shareholders can be confident of getting returns on their investments.
Conclusion
Evidently, form 10-K is a vital document that companies need to fill and submit to the Security and Exchange Commission. The main purpose of the form includes having a detailed explanation about the company, disclosing the risks that are faced by companies, and providing financial information to the relevant stakeholders especially to investors so that they can make the right decisions. From the analysis of the company’s form 10-K; the company is generally performing well. However, the profits of the company have decreased from 2010 to 2012 which is a concern to the investors especially the shareholders.
Reference
Kimmel, P. D., Weygandt, J. J., & Kieso, D. E. (2008). Accounting: Tools for business decision making . Chichester: John Wiley.
