Step 1:?Go gather the 10-k statement from the most recent annual year of your company. Source: SEC Edgar
?Find the letter to shareholders that management released, preferably most recent, but do what you can. Company investor webpage news releases. Or other
?Take a look at the investors website for your company, just casually. They all are different.
Step 2:?Read the letter to shareholders in entirety, make notes
Remember, this is your first step in understanding the business, read it as such. This is what the CEO/management team wants to say about the company. Legally, they cannot lie. There should be some information on the structure of the company, past/present/&future business, capital structure, M&A, dividends, etc., and general statements about the company and its people. There are incentives and unique wording used in most every letter (i.e. sentiment is attempted to be extracted from letters, as well). As an analyst of the company, use this as your first step to understand the business…every letter is different, so:
– Extract out pertinent financially stated information in a bulleted point list, typically their overarching financial situation/goals/expectations
– Extract out non-financial information that is important to the business (e.g. how they create value or future prospects for growth, etc.)
– Extract out any interesting information otherwise, that either you think is valuable (no need for copy and paste unless there is a perfectly worded line or two, you can ‘quote’ this.
– Extract out a bullet point list of any parts you don’t understand what the management is saying. If you don’t know what an LBO is, for example, and they discuss it without clarifying, please add this to your list of “I do not understands”.
?Read the 10-k statement, take notes.
– Get the income statement, balance sheet, and statement of cash flows into an excel sheet (yahoo finance or other may help you export one), but double check it in the 10-k.
– Find out what is said or posted about their investments, capital expenditures, etc.
– Find out what is said about their debt. Try to see the characteristics of their debt/bonds/bank loans/etc.?Continue to make notes/bullet points on possibly important info both quantitatively and qualitatively.
– Check the footnotes, see what is being said. This is where some information gets hidden and clarifies certain aspects of a 10-k.
– Extract out a bullet point list of any parts you don’t understand what the management is saying to a list of “ 10-k I do not understands”.
The output will probably be a relatively long document with a combination of small segments of writing, lots of bullet point takeaways, some headings and sub-headings for organization, and should be organized in structure (probably going to be a very ugly document as you begin building, but then you’ll go clean it up at the end to submit). There should be clear sections of information obtained from Letter and 10-k for (it will be smart for certain, non-obvious items, to also make a quick note of where you saw it (i.e.“(letter p.8)”). These are long documents so it’s nice to have a reference point occasionally.After/as you build the above, remember “CTRL F” will be your friend. “CTRL C and V” are not expected to be used much. This is your first knowledge building of the company. Also, hard work is expected, I know this is a big task. Let’s dig deep. If you can’t find something like the letter, start emailing/calling the company asking for the latest one as a future investor.
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