SEC Filings & Earnings: 10-K, Margins, Cash Flow

Public companies in the United States are required to file periodic reports with the Securities and Exchange Commission (SEC). The two most important are the 10-K (annual report) and 10-Q (quarterly report). The 10-K contains audited financial statements, management discussion, risk factors, and a comprehensive overview of the business. The 10-Q is filed for each of the first three quarters and contains unaudited financials and updated disclosures. Foreign companies trading as ADRs file the 20-F (annual) and 6-K (interim) equivalents. These filings are freely available through the SEC's EDGAR database and provide the most reliable source of company financial data — more trustworthy than third-party estimates because they come directly from the company under penalty of law.

Revenue (top line) is the total amount a company earns from selling goods or services before any costs are subtracted. Net income (bottom line, or earnings) is what remains after all expenses — cost of goods, operating expenses, interest, and taxes. A company can grow revenue while earnings decline if costs rise faster. Conversely, earnings can improve even on flat revenue through cost-cutting or margin expansion. Tracking both over time reveals whether growth is sustainable. Expanding margins alongside growing revenue is the strongest signal; revenue growth with shrinking margins may indicate a company is buying growth unprofitably.

Profit margins measure how efficiently a company converts revenue into profit at different stages. Gross margin (revenue minus cost of goods sold, divided by revenue) shows the basic profitability of the product or service. Operating margin subtracts operating expenses like R&D, sales, and administrative costs — it reflects the profitability of core business operations. Net margin is the final figure after interest, taxes, and all other items. Comparing margins over time and against industry peers reveals competitive advantages or deterioration. A company with consistently higher margins than competitors often has a moat — pricing power, cost advantages, or scale economies.

Free cash flow (FCF) is operating cash flow minus capital expenditures. While net income can be influenced by non-cash items like depreciation, amortization, and stock-based compensation, free cash flow represents actual cash the business generates that can be returned to shareholders or reinvested. A company that consistently reports positive earnings but negative free cash flow may be masking underlying problems. Conversely, a company with temporarily depressed earnings but strong free cash flow may be in better shape than it appears. Over long periods, the cumulative free cash flow a business generates is the truest measure of the value it creates for shareholders.