How to Use AI to Read 10-K Reports to Be a Smarter Investor

Public companies have to submit an annual report to the Securities and Exchange Commission (SEC). Form 10-K is one of the most complex reports companies must file, and the reports can be found in the SEC’s Electronic Data Gathering, Analysis, and Retrieval (EDGAR) system. There can be a lot of important information buried and possibly lost in hundreds of pages. As an investor, you can use artificial intelligence (AI) to help you sift through these reports—you just have to know how. We break down how to extract information and analyze these reports.

How to Use AI to Read and Analyze 10-K Reports: A Step-by-Step Guide

AI is designed to process a large volume of information at a high rate. It extracts data, detects errors, and generates reports and summaries so you can use your time wisely. Rather than poring through hundreds of pages of documents, you can copy a link or upload a report and then use the results generated from AI software to focus on making your analysis.

Summarize the 10-K Report and Extract Key Information

Form 10-K is a required annual report that gives you information about a public company so you can make informed decisions about your investments. The report is divided into five sections that highlight the key areas of a company.

• Business: This section highlights the nature of the company, including its products and services, markets, customers, and any other key factors.
• Risk factors: This section lists all of the risks the company faces, in order of importance.
• Selected financial data: This section provides certain financial details for the last five years.
• Management discussion and analysis: Here, the company’s management gives its views on the company.
• Financial statements and supplemental data: This section contains audited financial statements, including income statements, balance sheets, and cash flow statements.

You can find a company’s annual reports on the investor relations page on its website or by going to the SEC’s public database, EDGAR. There’s also a website you can use to search called AnnualReports.com. It aggregates annual reports from more than 10,000 international companies.

AI can be a valuable asset to you as an investor because of the complexity of annual reports. AI can help you automate the process of data extraction. For instance, you can easily look for financial data or company risk and identify trends without having to go through numerous pages.

Keep in mind that the process depends on the AI program you choose. For instance, you may need to install plugins for sites such as ChatGPT and Writingmate so you can upload PDF files for analysis. Other sites, including FinChat, AlphaSense, and Intelligize+ AI, don’t require any special add-ons to help you.

Access the 10-K Report and Upload Reports

It can be pretty daunting going through hundreds of pages of an annual report. As an investor, use your AI tools to help you sift through the following key pieces of information.

• Overview of the business: This gives you insight into the company: what it does, its customers and markets, and its products and services. As an investor, you need to know how the company makes money and whether it has the potential to be and remain profitable.
• Risks: This section highlights any threats that may affect the company’s financial position. They can impact your investment in the company, so it’s important to keep an eye on how well-positioned the company is to deal with them.
• Financial statements and supplemental data: The income statement, balance sheet, and cash flow statement provide a snapshot of the company’s financial health and well-being. They give you insight into a company’s financial leverage and indebtedness, and whether it has enough cash on hand.
• Management discussion and analysis: This section gives you corporate management’s opinion, including the direction of the company and its financial standing. You can make an informed decision about the data based on the leadership’s analysis.
• Compensation: You can find details about the company’s compensation policies, including how executives are paid. This is key because you’ll understand whether the leadership team’s compensation aligns with the company’s performance.

Analyze Financial Performance

Using the AI software of your choice to extract the data from Form 10-K is just one of the challenges. The other is to analyze the information and apply it to your investment strategy. Let’s take a look at how value investors would do this.

Value investors are long-term investors who believe in quality companies. They buy stocks that are trading below their true value. These investors can use annual reports to review risks, analyze financial statements, and understand the company’s business model.

If you’re a value investor, you’ll want to understand whether the company:

• Is financially healthy, has sustainable revenue growth and profit margins, and can manage its cash flow, which can be determined through its financial statements.
• Has a clear vision for the future and can explain changes in its financial results; you can find these details in the management discussion and analysis.
• Is well-managed, as shown in the company’s corporate governance report.

Regardless of what type of investor you are, you’ll want to review some of the financial ratios, including the price-to-earnings (P/E) ratio, price-to-book (P/B) ratio, and debt-to-equity (D/E) ratio.

AI Tools and Technologies to Read 10-K Reports

Artificial intelligence tools and technologies can make it easier for you to extract data from annual reports and help you understand some of the complex information they contain. This can free up your time so you can compare different companies rather than focusing your efforts on just one.

There are thousands of AI-powered tools out there, so you’ll need to do some research to determine which one works best for you. Some are free, while others come at a cost. Here’s a look at some popular AI tools and how they can help you in your annual report analysis.

• ChatGPT: Most people know about ChatGPT, which isn’t meant just for financial analysis. It can help you analyze reports and give you insight while providing you with guidance. As noted above, you can install plugins like the PDF reader to help you extract information from downloaded reports.
• AlphaSense: This is not a free service; it requires a subscription. You can use this platform to dissect different reports, including SEC filings, earnings reports, and financial statements. AlphaSense can also help you identify trends and investment opportunities.
• Daloopa: Daloopa has a free option with paid upgrades. You can use the service to upload documents or files to pull details from SEC filings, including annual reports.

The Bottom Line

Annual reports are important for investors because they provide a lot of key details about a company, including what the company does, the risks it faces, its financial position, and the management’s vision for the future. But you can miss a lot because of the sheer volume of information embedded within. That’s where AI comes in, allowing you to extract data so you can focus on your time on comparing companies to make better investment decisions.