10K and 10Q both are financial documents created by the US public companies to show the status of their business performance. Both documents are submitted to the Securities and Exchange Commission as per the rule. Before investing in any kind of public company you need to read these documents to find out the insights of that company.
All the SEC-regulated companies like ETFs, mutual funds, SPACs, etc must submit these forms as per their submission periods. A public company submits different kinds of fillings such as S1, S4, 10K, 10Q, 8K, etc. All these filings have their own importance and rules to write them. In this article, we will focus on two of the most popular filings 10K and 10Q. Before going into the differences between 10Q vs 10K let’s first discuss these two in detail.
What is a 10-Q?
A 10Q is a financial document submitted to the SEC by public companies quarterly. This SEC filing gives information to their shareholders on how the company has performed till this quarter of the year. This report gives information about total expenses, liabilities, assets, share outstanding, shareholders equity, etc. These forms are submitted for the first 3 quarters of each fiscal year and finally, the annual 10K filing is submitted.
Understanding SEC form 10-Q
As per the Securities Exchange Act 1934, form 10-Q shall be used for quarterly reports. The SEC filing date for companies varies but they must file 40 days after the end of the first fiscal quarter and 45 days after other fiscal quarters. The Filing must be prepared as per the general requirements demanded by the SEC. Generally, a company that is preparing the 10-Q report, creates at least 3 copies of it and submits it to the commission after an authorized officer signs it on behalf of the company.
The information provided by 10Q is divided into two parts: Financial Information and Other Information
- Financial Information
This category of information provides the reader with knowledge about the financial activity of the company. It presents all the expenditures, operation costs, cash held in the trust account, shareholders’ equity, etc. With the help of this, you will be able to find out how big the company is and what circumstance is making the company generate less or more capital.
Along with that, you will be able to check the company’s loss in tax expenses, loss from operations, change in fair value of options and securities liability, etc. From the share outstanding category, you will be able to find out how many common class ‘A’ public and private stocks are distributed and how many class ‘B’ common stocks.
From these values, you can also calculate the Net Asset Value (NAV) for that company. NAV is basically the price per stock according to the actual performance of that company in the market. You can also calculate the NAV of any public SPAC company using SPACrun’s NAV calculator.
- Other Information
In this section of 10-Q, you will be able to find out what might be the risk factors that can affect the stock price in the market. These factors could be a lot of call or put option trading or short selling that might fluctuate the market price at the highest rate. These factors act as the catalyst for sudden price fluctuations that cause gamma squeeze or short squeeze.
Other than that, you might also get information about the unregistered sales of equity securities and the use of proceeds from registered securities. Unregistered Sales of equity securities might be the scenario in which a company might need extra capital so they go for PIPE deals with institutional investors. Also, the company might have used the capital that they collected from the IPO to pay for sponsors also in cases of SPAC might be used in a business combination.
What is 10-K?
A 10K is a financial document submitted to the SEC by public companies annually. This SEC filing gives information to their shareholders on how the company has performed last fiscal year. Along with that it also provides information about the changes that they have made in the company, financial statements, executive compensation, liabilities, earnings, etc. It is a good practice to read 10-k filings (if not 10Q) before investing in any public company.
Understanding SEC form 10-K
As per the Securities Exchange Act 1934, Form 10-K shall be used for annual reports. This SEC form should be filed 60 days after the end of the fiscal year or 90 days after the end of the fiscal year for all other registrants. As per the general rules and regulations act, the form must contain general requirements as said by the SEC.
The report must contain financial statements, time schedules for financial statements, and other information, and should make three copies of it before submitting it to the commission. As a company might be listed in multiple stock exchanges, one copy of this report is filed to those exchanges also.
The information provided by 10-K is divided into 4 distinct parts:
- Part I
This part of the form describes the business activities that the company performs to get the revenue along with the risk factors that might come during this process. The company will write about total annual businesses and collaborations along with benefits they have got from those activities. Other than that, it also provides information about properties and legal proceedings that they have committed during this period.
- Part II
This part of the report gives information about market information i.e. information about shareholders and dividends along with options trading information. This also provides financial statements of the fiscal year along with total assets, liabilities, expenditures, debts, compensation, taxes they paid, and net cash held in the trust account. All in all, it gives a balance sheet about their company.
- Part III
This part of the documents provides directors, executive officers, and corporate governance along with information about security ownerships and management teams. It includes the salary of respected personalities, their business history, age, and employment agreement with the company.
- Part IV
This is the last part of the document where all the exhibits and financial statements are scheduled along with the signatures from the board of directors and CEO of the company. This part may also include the form 10-K summary if needed.
10Q vs 10K Basic Differences
|Form 10-Q||Form 10-K|
|This form is submitted to the SEC thrice a year.||This form is submitted to the SEC once a year.|
|All these forms are unaudited reports.||All these forms are generally audited before submission.|
|The form must be submitted within 40 to 45 days after the end of the quarter.||The form must be submitted within 60 to 90 days after the end of the fiscal year.|
|The information provided by 10-Q is relatively less as compared to 10-k.||The information provided by 10-K is in-depth as compared to 10-Q.|
|The information provided can be divided into two parts: financial information and other information.||The information provided can be divided into four parts: part I, part II, part III, and Part IV as shown above.|
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