This first module, I'm going to familiarize you with the information contained in your typical annual filing. This is an example of a public filing. Private companies don't typically have quite as much disclosure stuffed into their annual reports. But the financial statements will look very similar if they're prepared under what they call generally accepted accounting principles or gap for short. So to begin with, let's just pick a company. I'm going to pick the Home Depot for no particular reason other than it's a company that hopefully everyone has some familiarity with.

So there's a first step, let's go to the SEC website and track down the 10 K. The se C's website is sec.gov. And here we are on the SEC website. If you want to find were publicly listed financial statements are they'd be located under Edgar and two Search for company filings, we click here brings up this screen and we want to find the filings for the Home Depot. Today we see all the filings at the Home Depot has made. Whoa there's a lot of stuff here. As you can see, the 10 K is what we were looking for 10 Q's are their quarterly filings.

The eight Ks are your news releases. All the other filings are fairly self explanatory and serve purposes beyond what we were interested in learning during this course to narrow our focus we can type in 10 k in this search box and we can see their annual filings are summarized here. Now this is their last filing which is for the year ended January 30th 2011. Now I know that Home Depot is already released their January 2012 results but here it is a Few weeks later, and the 10 k has yet to be posted on Edgar. So for our purposes, we will go ahead and use the 2011 results for the purposes of this tutorial. To get the latest results, we would have to go to either the press release or the investors website or we could just as easily look at their last quarterly filings for the most up to date results.

So the first I have to note is that there's a time lag between when the company reports their earnings in a press release and when they father statements with the regulator in the United States, this can be several weeks. In Canada, this tends to be a day or two before they show up on cedar. We will click the 10 k document to open it up. And let's start looking at the table of contents. In Canada the information would be spread between the mdna the financial statements and the annual information form or the AI f but it's largely the same coverage as what you're finding in the 10 k First of all, we under item one we have a description of the business this is good if you're unfamiliar with the company and its activities. Under one a, we identified the risk factors for this company.

Now as a CFO and director actually spend more time on this section than most analysts might. My concern is always that the risks inherent in the business have been adequately disclosed to the reader. And for the most part, these will read probably as generic boilerplate sort of risks stuff like customer suppliers, competition, key employees, foreign exchange risks and the like. So for you, you'll only really get concerned if you notice any that appear odd. So for instance, a risk with an unfavorable outcome to a particular lawsuit, or a particular patent challenge, or perhaps a political risk in a foreign country. Those will stand out as being incremental risks.

Sections two and three properties in the legal proceedings give you similar sorts of high level warm fuzzies or perhaps chilling shivers. If you notice an error have concern between the description on the business and the risk factors you should be able to get a feel for the risk profile of the company. Ask yourself if the company feels more or less risky for example, now market leaders are less risky. diversified companies are less risky. diversified in the sense of geography customers, suppliers product lines, large companies tend to be less risky than smaller companies as they have greater opportunities to achieve economies of scale. This assessment simply gives you context as you review the rest of the results and make comparisons to peers.

The level of risk has a direct but very difficult to quantify impact on what the cost of equity is for the company. Quite simply, this means the investment returns a shareholder expects. Again this is a much more complicated subject that we'll cover in another course. Part Two contains the financial information. item five gives you details about the stock equity activities. Make note of this share buyback activity as this is generally a good thing, particularly if the stock seems undervalued.

But be wary of companies that are, shall I say expensive and undertaking share buybacks. share buybacks indicate that the company has surplus free cash flow. We'll go into what this means later buybacks will boost earnings per share growth as less shares will be outstanding, which can sometimes mask the true underlying growth rate in the business. Items six, seven and eight contain financial information we will review in detail in the next video. item nine is typically standard language but if there is substantive content in this section, it's a major red flag. Part Three contains information on the insiders of the corporation.

The biggest item that always makes me weary is when there's a substantial amount of transactions with related parties, which includes the executives or the directors of the company. insider trading and executive compensation are typically Covered off and other filings with the annual circular. Our proxy circular is used in conjunction with the annual shareholders meetings and contains matters requiring shareholders attention and or approval. Part Four has some supplementary data. And I like the supplementary five years summary data that Home Depot has provided to us. We'll look at this in the next video as well.

So there you have it, an overview of what is typically contained in the 10 K. There was a time when companies used to publish nice glossy annual reports with all sorts of supplementary analysis pretty graphs and commentary. Many companies now just take their 10 Ks which are printed on this horrible newsprint, wrap it inside a fancy cover with a letter from the President or the chairman of the board and use that for their annual reports these days. Now, if the company is not publicly traded, you'll likely get a set of financial statements and maybe a memo or a presentation describing the business. You want to know similar sorts of information as what has been provided in the 10 K. I'll stop here for now. But next time we're going to drill into the financial data. Until then, don't stop to get to the top and get to the top.

Don't stop.