What Is a 10-Q to Fundamental Analysts?

Most companies have 40 days from the end of each fiscal quarter to produce and provide the 10-Q to investors. Generally, companies file the 10-Q a week or two after they provide the earnings press release. You can see the deadlines for the key financial documents in the following table.

Source: Securities and Exchange Commission

Both the earnings press release and 10-Q serve the same basic purpose: They tell investors how the company did, financially, during the quarter. But because the 10-Q is written primarily to satisfy regulatory requirements, it's usually much more straightforward and contains less spin.

• Financial statements: Companies don't waste any time getting straight to the point with the 10-Q. The key financial statements are presented right at the top, while they're usually at the bottom of earnings press releases.

Don't make the mistake of assuming because you read the earnings press release, you don't need to bother with the 10-Q. The 10-Q usually goes into greater detail than the press release, not because companies feel like spilling the beans, but because these documents are filed with regulators. For instance, a vast majority of companies don't include a statement of cash flows in the earnings press release. The statement of cash flows, however, must be included in the 10-Q. The statement of cash flows is an extremely important document used in financial analysis.

• Footnotes: Just as some books just don't fit correctly in your bookshelf, some financial information doesn't slip nicely into the financial statements. Unusual or noteworthy financial events might require more description than will fit into the financial statements, and those are available in the footnotes in the 10-Q.

Never skip the footnotes. Companies will often throw items in the footnotes, hoping you'll miss them as an investor. Remember Enron, the energy company that failed in 2001, that was one of the biggest corporate frauds in U.S. history? The company stuffed much of the information about its cryptic partnerships in the footnotes.

• Management's discussion and analysis of financial condition: This section of the 10-Q is usually called the MD&A. In the MD&A, management steps investors through its financial results for the quarter. The narrative is usually stripped down and, well, straightforward because executives know the SEC will review it. So they don't want to say anything that may haunt them later.
• Controls and procedures: The company will let investors know if they found any problems in the way they monitor their accounting and present the information to investors. Following the accounting scandal at Enron, new rules from the Sarbanes-Oxley Act of 2002 forced companies to make sure they had adequate controls in place over their accounting. Many companies fought tooth-and-nail to avoid these rules. You might as well read them.
• Other information: Here, companies can throw in other material that might be of note to investors. This may include any pending litigation or whether the company sold additional stock, or is having trouble paying interest on its debt.