A guided walk through a real 10-K

Take everything from modules 1-9 and apply it to a real 10-K. We'll use Costco (ticker COST) — a public, mature, well-understood retailer where the patterns are clear. The same procedure applies to any 10-K.

Step 0 — orient yourself

Open the most recent 10-K on sec.gov. Skim the table of contents. Read the MD&A summary first — it's management's narrative. Note their key metrics, their commentary on macro conditions, and any risks they flag prominently.

Step 1 — the income statement

1. Revenue: growth rate vs prior year and 5-year CAGR
2. Gross margin: trend over 3-5 years (Costco's is famously narrow at ~13% — by design)
3. Operating margin: how stable is it?
4. Net income: bottom line, but also note effective tax rate trends

Step 2 — the balance sheet

1. Cash position: how much, and what's it earning?
2. Working capital: AR, inventory, AP — compute DSO, DIO, DPO
3. PP&E: how much is being added each year (compare capex to depreciation)?
4. Debt: total, maturity profile, covenants — read the debt note
5. Equity: retained earnings progression, buybacks, dividends

Step 3 — the cash flow statement

1. CFO vs net income — close? The closer the better
2. Capex: maintenance vs growth, capex-to-revenue ratio
3. Free cash flow: compute and trend it
4. Financing: dividends, buybacks, debt changes

Step 4 — the notes

1. Revenue recognition policy
2. Inventory method (FIFO/LIFO/weighted average)
3. Lease commitments
4. Segment data
5. Anything unusual in 'other'

Step 5 — the ratios

Compute the dozen from module 6. Compare to peers (Walmart, Target, BJ's). Decompose ROE via DuPont. Ask: where is the return coming from?

Step 6 — the questions you'd ask

The point of going through statements isn't to admire them. It's to surface questions a business needs to answer. By the end of a careful read, you should have 5-10 questions like:

• Why is inventory growing 12% when revenue is growing 7%?
• Why did the effective tax rate jump 4 points this year?
• What's the maintenance capex run-rate vs growth capex?
• Are membership renewal rates trending up or down (segment data may not include this — check the MD&A)?
• How much of the buyback offset SBC dilution vs reduced share count net?

Where to go next

This course was the first floor. Next: valuation (DCF, comparables), capital markets (how debt and equity are actually priced), and corporate finance (how decisions get made inside companies). They all assume you can read a statement. You now can.