The United States Securities and Exchange Commission (SEC) is an independent agency of the federal government. It pursues many objectives, including protecting investors, maintaining efficient markets, promoting capital formation, and others. The SEC has multiple means to achieve its goals, and a 10K annual report is among them. Thus, this paper aims to explain why 10Ks are essential to the SEC, identify the factors of communication, and describe why this document is significant for its users.
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To begin with, one should consider that many issues make the SEC require companies to file 10Ks. Firstly, the agency protects investors and obliges publicly-traded companies to disclose their financial condition. This fact provides investors with sufficient information to decide whether it is reasonable to buy or sell a corporation’s shares. Secondly, 10Ks help the SEC establish and maintain efficient markets. It is so because this document tells how a company offers its products and services and what results it has achieved. Since this information is available for public use, businesses tend to follow high performance standards to attract customers and investors, which is productive for the whole market.
Since 10Ks aim to present information from a company to its users, businesses should consider a few communication factors to cope with this task successfully. On the one hand, 10Ks are official documents, meaning that they should not contain any emotionally-colored data. That is why the Apple 10K only offers official and factual data about the company’s performance (United States Securities and Exchange Commission, 2019). On the other hand, it is necessary to remember that the document is intended for individuals with different backgrounds and expertise levels. It means that professional investors may be better-versed in financial ratios compared to ordinary customers. That is why all the economic indicators should be accompanied by their explanation to achieve easy understanding.
In addition to financial statements, 10Ks present various types of information that are useful for numerous individuals. Firstly, it refers to risk factors stating that a business’s performance can be affected by multiple phenomena. For example, the Apple 10K shows that the company significantly depends on the global market and regional economic conditions (United States Securities and Exchange Commission, 2019). Secondly, 10Ks also address legal proceedings that can arise in the ordinary course of business. These two types of information are useful for the users of annual statements because they demonstrate that a company’s performance depends on some external factors. Furthermore, 10Ks show that legal proceedings also have an impact on companies’ financial performance.
Finally, one should mention that numerous individuals can satisfy their information needs with the help of 10Ks. As has been discussed above, shareholders can use this information to either buy new or sell their current shares. 10Ks also describe credit risk amounts of a business, which is useful for creditors. Employees and customers will benefit because these documents present the company’s general information. Consequently, these individuals can use 10Ks to decide whether it is reasonable to cooperate with a particular business. As for financial analysts, they use 10Ks to extract all the necessary and reliable information to generate reports regarding a company’s financial condition.
In conclusion, 10Ks are important documents in the business world. The United States Securities and Exchange Commission uses them to create more efficient markets, protect investors, and others. That is why businesses should draw specific attention to meet the stipulated requirements and disclose all the necessary information. Shareholders, creditors, customers, employees, and financial analysts can find useful data in 10Ks to satisfy their information needs.
United States Securities and Exchange Commission. (2019). Form 10K.
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