There are many people that would love to be involved with investing, but have no idea where to start. One significant problem is distrust of Wall Street professionals stemming from the collapse of Lehman Brothers, large banking firms that made disastrous decisions with mortgage lending that led to the housing market crash, and companies like General Motors who seemingly couldn’t manage their own finances. Few people know someone who made it rich from good investing with even fewer knowing someone that could tell you the tools to be able to get there yourself. When asking someone where to start, the replies should have been, “10-K Forms submitted to the Security Exchange Commission is where to start!”
Public companies are required to submit 10-K Forms to the Security Exchange Commission (SEC) on an annual basis that provide company information. These forms include information like what the company does to make money and current state of finances including company stocks. Even though there is specific data required by the SEC, every company doesn’t present their information way, so use of Investopedia or other online resources may be required to learn some of the terminology. The SEC has penalties such as monetary fines and prison sentences in-place as incentives for companies to submit honest reports, so trust issues previously identified shouldn’t be of personal concern. Much more information is contained within 10-K Forms that are beyond the intended scope of this research.
Advanced Micro Devices, (AMD), a computer chip manufacturer whose stock is publically traded and their 2010 10-K Form, (AMD, 2011), will be examined to answer three key questions. “What does AMD’s presentation of their financial information say about how they use financial information to inform investors? And, what does AMD's presentation of their financial information tell about how they use financial information for making decisions internally? What are some facts that support the actions presented?
Different elements need to be established to answer these questions. First, historical and current fiscal data points will be analyzed. At various points additional information will be presented to provide different perspectives for comparison of what is being presented to the investor and what it means to them. Finally actions taken by management will be reviewed to gain knowledge of what their intentions were. All of these factors will demonstrate the value of starting with a company’s 10-K submission! Historical and Current Fiscal Data Points
To gain insight about AMD’s financial status required a close look at its10- K, Part II, Item 6. Between 2006 and 2009 revenues remained virtually flat and in 2010 increased 20 percent. During this five year time period, continuing operations and net income attributable to AMD common stockholders recognized a loss of 11.42 billion dollars. Further losses of $1.27b from discontinued operations, net of tax. Long-term debt between 2006 and 2009 averaged 4.9 billion per year and 2010 saw a significant reduction to $2.27b. In short, this snapshot view reflects heavy losses with some glimmer of hope starting some time in 2009 which carried over to 2010. Missouribusiness.net demonstrates various financial ratios and discusses how to employ them to answer many questions about a company, (2012). Determining liquidity could be used to determine if a company has the ability to pay its bills. Applying the “Current Ratio” formula of, “total current assets divided by total current liabilities”, to AMD’s situation equates to ratio of 2.18. This does meet Missouribusiness.net’s general rule of thumb requirement, (greater than 2 to 1), but when compared to the 2006 ratio of 3.13, it becomes quite obvious that AMD’s capacity to take of the bills has decline. Comparison was made to Intel Corporation, (a direct competitor and within the same time reporting period), managed a “Current Ratio” of 3.39, (2010 data...
References: AMD. (2011, March). Form 10-K. Retrieved 2014, Feb 23 from: http://phx.corporateir.net/External.File?item=UGFyZW50SUQ9ODUyNDV8Q2hpbGRJRD0tMXxUeXBlPTM=&t=1
Kindergan, A. (2013, May 1). Deciphering the 10-K. The Financialist by Credit Suisse. Retrieved: 2014, Feb 23 from: http://www.thefinancialist.com/deciphering-the-10-k/
Office of Investor Education and Advocacy. (2011, July 1). How to read a 10-K. U.S. Securities and Exchange Commission. Retrieved 2014, Feb 23 from: https://www.sec.gov/answers/reada10k.htm
Missouribusiness.net. (2012, June 20). Financial ratios. Curators of the University of Missouri. Retrieved 2014, Feb 23 from: http://www.missouribusiness.net/sbtdc/docs/financial_ratios.asp
Intel. (2012, Feb 23). From 10-K. Edgar Online. Retrieved 2014, Feb 23 from: http://www.zonebourse.com/INTEL-6465/pdf/286776/INTEL_SEC-Filing-10K.pdf
Kennon, J. (n.d.). Continuing Operations vs. Discontinued Operations. Investing Lesson 4 - Analyzing an Income Statement. About.com. Retrieved 2014, Feb 23 from: http://beginnersinvest.about.com/od/incomestatementanalysis/a/discontinued-operations-income-statement.htm
Janssen, C. (2012, March 3). A breakdown of stock buybacks. Investopedia US, A Divison of IAC. Retrieved 2014, Feb 23 from: http://www.investopedia.com/articles/02/041702.asp
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