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What are the most important parts of a 10q to read?

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August 31, 2011 – Comments (4)

Usually when I invest I just use strategies and logic.  Low rate environment, I buy high yield bonds and agnc.  I dollar cost average.  I use contrarian indicators like RSI, VIX, bull/bear ratios, MFI, etc.  I find it pretty easy to pick out a best of breed stock by doing 10-15 minutes of research on history of profitability, look at costs of funding, and recent moves made by management and see if I like them or not.  I like to invest in companies that always beat estimates when their CEO says their growth will be stronger than usual, or their stock price is too cheap (for instance, when Jamie Dimon says it as opposed to when Moynihan says it).  I try to catch sector rotations and look at charts and identify competitve advantages of different companies and see if they are sustainable.  I love buying companies that fall back to their pre take over bid stock price when the deal falls through.

However, I generally ignore the 10q.  I just take a quick check at the PEG, see if the revenue is growing or falling (same for the sector) , see if the CEO has a positive outlook on the company, and then move on.

I want to start reading 10-q's when I get the chance more often, but there is no way I am going to read the whole thing.  Not because I am lazy, but because a lot of it is reptitive or tells you the mission statement or lists all of the directors.  The only part of the 10-q I have identified as important is the "risks" section.

I knpw basic accounting so I can keep up, so which sections are most important so that it can take me less time and still get all of the key points?

4 Comments – Post Your Own

#1) On September 01, 2011 at 12:11 AM, wolfhounds (29.19) wrote:

1. Mgt. discussion & analysis of financial condition and results.

2. Business segment results.

3. Balance Sheet analysis.

Just my opinion. I especially look at changes in B/S items that effect the P&L. E.g., changes in reserves, inventory, accounts receivable.

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#2) On September 01, 2011 at 1:17 AM, HarryCaraysGhost (99.71) wrote:

Dude, I don't even know how to expain it.

Take a quick gander at CBOE's recent profits.

Of course I was calling for that ,for more then a year...,

So I suppose I was a bit early on that call.. ; )

Mr Market is irattional.

I know that

You know that

Now let's go make some cash.

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#3) On September 01, 2011 at 1:22 AM, HarryCaraysGhost (99.71) wrote:

If a Company says it's revenues are NIL

Ya might want to look for another stock.

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#4) On September 01, 2011 at 12:24 PM, truthisntstupid (91.77) wrote:

From Reading Financial Reports For Dummies:

(Think I know this stuff? No...but I always have a book I can look it up in!)

Notes to the financial statements will reveal when long-term debt comes due, and lease obligations.

There will be a chart showing the terms of of borrowings, and another chart showing the amount of cash the company has to pay towards its debt for each of the next 5 years and beyond. 

Capital leases are shown as a long-term debt obligation on the balance sheet, but operating lease obligations are a type of debt financing that don't have to be shown on the balance sheet. Some of these lease obligations may only be mentioned in the notes to the financial statements, but that doesn't mean they can't potentially create future cash flow problems for the company.

Effects of mergers & acquisitions, commitments & contingencies (lawsuits).

There's a lot more; Reading Financial Reports For Dummies is a mighty fine book that will see a lot of use from me in years to come. 

I don't usually read these myself; which is not a good thing, but, like you, I'm always searching for more knowledge.

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