5 takeaways:
➀ Be familiar with the most common records from the Securities and Exchange Commission. The SEC is the main regulator of publicly traded companies in the U.S., and business reporters quickly become familiar with the main documents that are filed each year and quarter: the 8-K for breaking business developments, the 10-Q for quarterly earnings reports, the 10-K for annual reports, and the DEF 14A, also known as the “proxy statement,” for executive compensation. There are plenty of other reports (see a complete list here) but the big four will give you most of what you need. Remember, you’re only getting a snapshot of the business world: There are roughly 15,000 publicly traded companies in the U.S. but 6 million privately held ones. That said, public companies are generally much, much larger and employ a disproportionate share of the workers in the nation.
➁ Make sure you’ve found the right company. SEC filings are contained on the Electronic Data Gathering, Analysis and Retrieval system – EDGAR. Take a company – say, the big pharmaceutical firm Pfizer Inc. – and put its name into the search engine. Result: seven entries, including Pfizer Inc. (PFE), Pfizer Master Trust and Pfizer Manufacturing LLC. Rob Wells, a longtime business journalist and now professor at the University of Arkansas, suggested going to a site with stock market information — maybe Yahoo finance — and find the company’s ticker symbol. In Pfizer’s case, it’s PFE, and that will help you zero in on the parent company, which is generally what you want from SEC records.
➂ Be on the hunt for lawsuit information buried within the filings. Finding lawsuits against or by a company can yield a treasure trove of information, particularly if the case went to trial or had extensive discovery. Companies must disclose what risks they face; lawsuits are often contained in the section about risks. Not all lawsuits or other risks have to be disclosed — only ones that could have a significant effect on the company’s financial results. And while there is subjectivity involved in what rises to the level of disclosure, be on the lookout for the phrase “material adverse impact.” Wells said it’s “a very important red flag term. … That is definitely a warning to investors that they could either lose a lot of money or maybe even the business could be at risk of staying afloat.” One tip: Compare 10-K risk sections from year to year by copying and pasting the relevant sections into word-processing documents and use track changes to see what is different. “That can help you discern what exactly to focus in on,” Wells said.
➃ Use financial analysts to help you understand a company — but remember their blind spots. The financial community is packed with analysts who closely follow companies and know their operations and finances almost as well as people inside the company. But they are there for a simple reason: to help people decide whether to invest in the company. “The agenda of the financial analyst is different than the agenda of a journalist,” Wells said. “They’re good for sniffing out some issues, but they completely miss the boat on the public interest in a lot of ways.”
➄ Use the SEC search tool to zero in on regions or industries, not just individual companies. Using Boolean operators in the EDGAR search tool can help you pinpoint companies from a certain state, city or industry (for a full list of searchable field names, click here). Some examples: “CITY=Pittsburgh TYPE=10-Q” would yield all 10-Q filings from Pittsburgh-based companies. A ZIP code search of “ZIP=2964*” uses a wildcard character to find companies in any ZIP code that starts with 2964. A search of “ASSIGNED-SIC=0800 and BUSINESS-ADDRESS=CA” would pinpoint California business addresses involved in forestry.
Speaker: Rob Wells, Associate Professor, School of Journalism and Strategic Media, University of Arkansas; Author, “The Enforcers: How Little-Known Trade Reporters Exposed the Keating Five and Advanced Business Journalism”
This program was funded by the Evelyn Y. Davis Foundation. NPF is solely responsible for the content.
