Key Takeaways
- The SEC is a government body that oversees companies and requires them to disclose financial information and events to investors.
- There are a number of filings that companies have to file. The key ones include the Form 10-K, Form 10-Q, Form 8-K, Forms 3, 4, and 5, and Schedule 13D.
- The 10-K is one of the most important filings for investors because it provides comprehensive financial statements and information about the company.
- You can use the information provided in the SEC filings to do fundamental analysis and research to make decisions about your investment portfolio.
- Companies publish their filings at EDGAR, the SECs online database.
What is the Role of the SEC?
The SEC is an independent government body established by the Securities Exchange Act of 1934. It was created in order to restore investor confidence following the stock market crash of 1929. The agency is tasked with maintaining a fair market, protecting investors and facilitating access to capital.
The SEC monitors and oversees companies to ensure that they are providing accurate and complete information to investors. It is tasked with making sure that everyone has access to specific information about publicly traded companies.
It does this by requiring companies, fund and asset managers, and other participants in the market to regularly disclose specific financial data. This is to ensure investors have access to timely and accurate data to make informed decisions about how to invest.
Main Types of SEC Filings
There are a number of forms that the SEC requires companies to provide on a quarterly and annual basis, as well as when certain events happen, such as a stock split or a board member is appointed. Here are some of the main types of SEC filings that retail investors should know:
Form 10-K
The Form 10-K is an annual audited report filed by companies. It contains an overview of the companys financial statements over the past year, as well as any forward looking statements. While it can overlap with a companys annual report, its a different document. The annual report may include some but not all of the same information and usually includes charts and graphics.
The 10-K is comprehensive and filed within 60 to 90 days of the close of the companys fiscal year. It includes a number of parts with comprehensive and detailed information for investors including:
- Financial statements including revenue, balance sheet, and cash flow statements
- Changes in management
- Current operations
- Areas of concern and competition such as legal proceedings or regulatory issues
- Future company plans
While Form 10-K is very dense, the plethora of information and data is the reason its one of the most important documents that investors should understand and read. The information in the 10-K gives investors a comprehensive overview of the company and its financial standing, which in turn helps investors decide whether or not to invest in said company.
Many investors use fundamental analysis to understand a companys 10-K. This is a type of analysis that looks at ratios and other metrics based on a companys financial statements. That includes looking at a companys revenue, earnings, return on equity, profit margins, and more.
Other items in a Form 10-K that investors should watch out for include any legal proceedings or statements that indicate future volatility or concerns about regulatory, economic or political events that could have an impact on the companys financials.
Form 10-Q
The 10-Q is similar to the 10-K but is filed on a quarterly basis. It includes financial statements and information on an ongoing basis. Its filed for the first three quarters of the fiscal year (the 10-K is filed for the last quarter). Companies have until 40 days after the last day of the quarter to submit their 10-Qs.
The 10-Q is less dense then the 10-K and is not audited. But it still provides essential data for investors. Because 10-Qs are submitted quarterly, it gives investors the chance to update their metrics and to keep track of any changes that may be happening at the company.
Some of the essential items that investors can find out in the 10-Q include:
- Updates on legal proceedings
- Changes to capital
- Share buybacks
- Inventory risks
The information in the 10-Q can also be used for fundamental analysis. Investors will often look at a number of competitors to see how the sector overall is faring and how the company they are investing in compares to others.
Form 8-K
When an unscheduled yet important event arises, companies inform investors by filing a Form 8-K. This could include the resignation of an executive, appointment of a new executive or board member, bankruptcy, completion of an acquisition or anything that has a material impact on the company.
The 8-K keeps investors informed of anything happening at the company that could impact share prices. While there are some events that the SEC mandates be reported through a 8-K, companies can also use the form to share information directly with investors, such as a new product launch.
These types of events can have an impact on the stock price of a company. Investors can use the 8-K data to analyze the events that can cause a price movement or they can decide to trade based on the information provided.
Proxy statement
Before board meetings, companies will file a proxy statement with the SEC. This includes information that will be discussed at the meeting, such as the items to be voted on, compensation of executives, and the structure and pay of the board of directors.
The proxy statement must be filed before the board can ask shareholders to vote. Owning common stock of a company generally gives investors voting rights. Because most investors cant attend meetings in-person, the proxy statement gives them the information they need to decide how they will vote vis-a-vie a designated person known as a proxy, who will aggregate votes on the shareholders behalf. The votes can be cast up to 24 hours before the shareholder meeting.
Forms 3,4, and 5
A companys officer, director, or anyone who owns more than 10% of the company must file Forms 3, 4, and 5 which detail information about what they own.
- Form 3 is the initial filing that discloses ownership
- Form 4 is filed if there is a change in ownership
- Form 5 is an annual summary of Form 4 and includes any other information that should have been reported
Because directors and large owners tend to be more in tune with what is happening at the company, investors tend to react when they buy or sell shares. They are usually restricted from buying or selling new stock six months after a recent event in order to prevent insider trading. So when they do buy or sell, its usually an indication that they think the stock will go up or think there is an opportunity for a merger or acquisition. Retail investors should pay attention to these forms to inform their own investing decisions.
Schedule 13D
If a shareholder buys more than 5% of the company, they are required to report a Schedule 13D within 10 days. It must include the buyer’s name and address, the amount and type of shares, the relationship with the company, why the transaction is happening, and other detailing information.
This form is required to prevent corporate takeovers without investors knowing about it. When a shareholder owns 5% or more of a company, their voting power increases. This can cause a lot of changes at the company. Schedule 13D is designed to alert investors to the possible consolidation of ownership, or an acquisition or merger bid.
Where to Find SEC Filings
You can find any of the above SEC forms for free at EDGAR, the agency’s electronic filing system. Many companies also provide the filings online on their investor relations page.
EDGAR includes all forms filed by many publicly traded companies and goes back as far as 1995. Having one database makes it more timely and accurate, especially as a lot of these fillings include market moving information. However some companies may be exempt from filing some forms as they are below certain thresholds.
The EDGAR system can be used like any other online search engine. You type in the name of the company or individual and refine your search by date, location, or type of file.
The Bottom Line
The SEC requires companies to report a number of detailed financial statements and inform investors of specific events in order to make sure investors have all the information they need to invest. While dense, the information provided in these filings is essential. It provides investors with the data they need to perform fundamental analysis on stocks, research new stocks, and decide if they should buy or sell shares.