A 10-K annual report is the most important document a public company publishes. It's also typically 200+ pages of legalese, boilerplate risk disclosures, and accounting tables that most retail investors skim and forget.
This post walks through the 6 sections of a 10-K that actually matter for valuation, with what to look for in each, using Apple's most recent fiscal-year 10-K as the worked example. After reading this you'll be able to extract the signal from any 10-K in under 30 minutes.
(And if you want the shortcut: every public company's key 10-K metrics are pre-extracted and surfaced on the relevant /buffett/[ticker]/ page on invest-like. The 5-pillar verdict pulls from the same 10-K data.)
Section 1: Item 1 - Business
What it is: A description of what the company actually does, its products, its segments, its geography.
What to look for:
- Revenue mix by segment: how concentrated is revenue? Apple's 10-K shows iPhone ≈ 51%, Services ≈ 24%, Mac ≈ 8%, iPad ≈ 8%, Wearables ≈ 9%. Concentration matters - a one-product company has more fragile durability than a diversified one.
- Revenue mix by geography: how exposed to currency / regulatory / political risk is the business? Apple's international mix is ~58%.
- Customer concentration: does any single customer account for >10% of revenue? Most SaaS companies disclose this. NVIDIA's biggest customers are 35-45% of revenue combined (Microsoft, Meta, Google, Amazon) - that's a different risk profile than a consumer-products company with millions of customers.
What to ignore: marketing prose about "innovation" and "values". The numbers tell the story; the prose is for non-investors.
Section 2: Item 1A - Risk Factors
What it is: A long list of risks the company is legally required to disclose.
What to look for:
- New risks year-over-year: compare the current 10-K's risk-factor list to last year's. New risk factors are the most informative; they signal what management is genuinely worried about that wasn't a concern 12 months ago.
- Specific risks vs boilerplate: ignore the boilerplate ("economic downturn could affect demand"). Pay attention to specific risks ("our supply chain depends on a single Taiwan-based foundry whose operations could be disrupted by..."). Specifics indicate concentrated risk.
- Regulatory risks: changes in tax policy, antitrust scrutiny, GDPR-style data regulations. These are the risks that can hit the business model directly.
What to ignore: the 50 generic risks every company copies-pastes ("general economic conditions", "competition", "key personnel"). They're legal CYA.
Section 3: Item 7 - MD&A (Management's Discussion and Analysis)
What it is: Management's narrative explanation of the financial results. Often the single most informative section.
What to look for:
- YoY revenue change with reason: did revenue grow because of price increases, volume increases, new product launches, or one-time factors?
- Gross margin movement: is it expanding, contracting, or stable? A contracting gross margin in a high-quality business is the early warning of moat erosion.
- Operating expense growth: did operating expenses grow faster than revenue? Operating leverage means the business should scale efficiently; if opex grows in line with revenue, the business is at scale-flat.
- Forward-looking statements: management's commentary on the next quarter / next year. They're legally required to flag these as forward-looking; pay extra attention to changes in tone year-over-year.
What to ignore: rosy summaries that don't engage with the actual numbers ("we had a strong year of growth and value creation"). The MD&A should be specific.
Section 4: Item 8 - Financial Statements
What it is: The audited income statement, balance sheet, cash flow statement, and notes.
What to look for:
- Quality of earnings: compare net income to cash from operations. If CFO is materially higher than net income, accounting is conservative (good). If CFO is materially lower, watch for working-capital tricks.
- Free cash flow: CFO minus capex. The actual cash the business generates after maintenance investment. This is what gets you to owner earnings (see our explainer).
- Share count over time: did the share count decrease (buybacks) or increase (dilution)? Stock-based-comp is a real cost; check what % of compensation is paid in stock.
- Balance sheet liquidity: current assets / current liabilities. Buffett wants ≥ 2.
- Working capital trends: a deteriorating receivables-to-revenue ratio is the classic early-warning of revenue-recognition shenanigans.
The footnotes: where the real action often lives. Read the footnotes on:
- Revenue recognition policy
- Operating leases (now on the balance sheet post-IFRS-16)
- Pension obligations (often understated)
- Stock-based compensation (always non-cash but always a real cost)
- Off-balance-sheet arrangements (rare for big companies, but read the section if it exists)
Section 5: Item 7A - Quantitative and Qualitative Disclosures About Market Risk
What it is: How exposed the company is to interest rates, currencies, and commodities.
What to look for:
- Interest-rate sensitivity: how much does a 1% rate move affect interest expense?
- Currency exposure: which currencies, and is the company hedged?
- Commodity exposure: only matters for capital-intensive cyclicals, but if you're analysing one of those, this is the section that quantifies the cycle.
For most pure-software companies, this section is short. For industrials and consumer-staples, it's worth a read.
Section 6: Item 11 - Executive Compensation
What it is: How much the top executives are paid, and how the pay is structured.
What to look for:
- Compensation tied to per-share metrics: ideal. Means the CEO is incentivised to maximise per-share business value.
- Compensation tied to revenue or absolute earnings: a yellow flag. CEOs incentivised on absolute scale can over-pay for acquisitions and dilute shareholders.
- Long-term incentives vs short-term: a healthy mix is 60-80% long-term equity. Heavy short-term cash bonus structures encourage short-termism.
- Insider ownership: does the CEO own a meaningful percentage of the company? Founder-owned businesses with > 5% management ownership tend to behave very differently from professional-CEO businesses.
What to ignore: the absolute dollar amounts (they tell you the executive is well-paid; they don't tell you whether the company is well-run). What matters is the structure of the compensation, not the level.
What you can safely skim
These sections are typically not value-relevant for valuation:
- Item 2 - Properties: list of corporate properties. Useful only for retailers (Costco, Walmart) where store count is the leading indicator of growth.
- Item 3 - Legal Proceedings: usually boilerplate. The exception is when a specific lawsuit has material financial impact (Bayer-Monsanto Roundup, J&J talc - those are 10-K item 3 stories that shaped the equity).
- Item 5 - Market for Registrant's Common Equity: stock-price history and share-repurchase summary. Useful for tracking share-count over time, but the same data is in the cash flow statement.
- Item 9-9B: auditor changes and internal-control disclosures. Skim for red flags (auditor change with no explanation, internal-control deficiencies).
- Item 10-14: corporate governance and director compensation. Read once when you first analyse a company; skim thereafter.
The Apple 10-K worked example
For Apple's most recent fiscal-year 10-K, here's what 30 minutes of focused reading reveals:
- Item 1: ~51% iPhone, 24% Services. Services growth = 14% YoY = the bull case.
- Item 1A: new risk factor on AI capex deployment, change from prior year - management worried about the ROI of the AI buildout.
- Item 7: gross margin expanded ~100 bps. Operating expenses grew 5% vs revenue growth of 8%. Operating leverage working as expected.
- Item 8: FCF = $108.8B. Buyback at $107.7B. Share count down 2% YoY. Compensation ~$10B in stock-based-comp (real cost).
- Item 7A: low commodity exposure (no metals or oil exposure to speak of). Currency hedged via forward contracts.
- Item 11: Tim Cook ~$67M total comp, 80%+ equity, vesting on per-share metrics. Healthy structure.
That's enough to compute the 5-pillar score on Apple from the 10-K alone - no other sources needed. The result matches what /buffett/aapl/ shows.
How invest-like uses 10-K data
We pull every public company's 10-K (and 10-Qs) from EDGAR via Financial Modeling Prep, then extract the underlying numbers into our scoring engine. The result: every stock page on invest-like is pre-populated with the data you'd get by reading the 10-K manually, in 30 seconds instead of 30 minutes.
But the 30 minutes of manual reading is still worth doing for your highest-conviction positions. The structured data captures the numbers; the prose of the MD&A and the new risk factors give context that pure numbers don't.
Disclosure
Educational tool. Apple's 10-K is publicly filed with the SEC and available at sec.gov for free. The descriptions in this post are derived from the public filing. invest-like is not affiliated with Apple Inc.
Author: Zaid Ghazal, founder of invest-like, indie SaaS, Kiel, Germany. Not a registered investment adviser.