Blog Post Published on 18th April,2025

How To Read A 10k Report With LexiTrove AI-Powered Document Intelligence Tool

7 Min Read

By Rohit Kumar
Founder, LexiTrove

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Figure 1: Tom the cat sitting on a chair, looking suspicious while holding a newspaper—just like investors reading a 10-K report

Recall the overwhelming anxiety your parents faced when they finally received your school report card? The way their gaze quickly darted past the outstanding grades straight to the one subject that required "improvement"? Well, investors undergo a similar emotional journey when going through a company's 10-K report—where instead of a disappointing math score, it’s unforeseen losses, concealed risks, or obscure warning signs that cause their hearts to race. Just as an academic report influences your future at home, a 10-K report can determine the fate of an entire company—making it crucial (and nerve-wracking) to meticulously examine every detail. But don't worry. In this article, I will present a straightforward yet effective roadmap for reading a 10K report, using some of Lexitrove's offerings to simplify the process.

A 10-K report is an annual document that outlines a company's financial results and operational activities. Every 10-K report consists of four main sections and contains approximately 15 or 16 items. However, the question arises: how significant is each section within the 10-K report? As indicated by a resource published by the SEC,not all sections carry the same level of importance. The resource emphasizes that as an investor, one should focus on the following sections with in the 10K report :

1. Item 1
   Business
   This section provides a fundamental understanding of the company's operations, products, services, markets, and subsidiaries. It also covers recent events, competition, regulations, labor issues, and seasonal factors.
2. Item 1A
   Risk Factors
   Understand the most significant risks faced by the company and its securities, typically listed in order of importance.
3. Item 1B
   Unresolved Staff Comments
   This section discloses details about any sales of company stock that were not registered with the SEC, along with how the proceeds were used.
4. Item 7
   Management’s Discussion and Analysis of Financial Condition and Results of Operations
   Management provides their analysis of the company's financial performance, results of operations, liquidity, capital resources, and significant trends and uncertainties.
5. Item 8
   Financial Statements and Supplementary Data
   Pay attention to the auditor's opinion – unqualified opinions are best. Carefully evaluate any qualified opinions or disclaimers, and examine disclosed material weaknesses in internal controls.
6. Item 10
   Directors, Executive Officers, and Corporate Governance
   This section provides information about the company's leadership, their experience, the company's code of ethics, and board qualifications.
7. Item 11
   Executive Compensation
   Details compensation policies, programs, and amounts paid to top executives. This information may be included in a separate proxy statement, incorporated by reference.
8. Item 12
   Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
   Information about shares owned by directors, officers, and large shareholders, and shares under equity compensation plans.

Let's put the theory aside and begin examining a 10-K report. In this exercise, I will analyze the most recent five years from 2019 - 2023 of 10-K reports for Papa John's. For those of you who aren't familiar, Papa John's is a pizza restaurant chain from the United States that also has locations beyond America.You can find the 10k reports here.

Figure 2: Graphic illustration titled Reading a 10K Report,featuring a report cover

To start, I will upload each of these reports one by one to LexiTrove's PDF Summarizer to obtain a general overview of the company. If you find the generated summary unsatisfactory, you can click the regenerate button to create a new one. I will also use the Mindmap feature to visualize the report. From the produced summaries, I will select and paste the key points into a Word document or a TXT file for future reference.

Next, I'll upload all five 10-K reports to LexiTrove’s Chat With PDF feature and let it do its thing. Then, I'll sit back and wait for it to process the documents—and trust me, I know it's slow... because I coded it. Considering the file sizes in this usecase, it will require approximately 5 to 7 minutes to fully process it.

Now the exciting part begins—you will take on the role of the formidable Adrian Monk(and if you haven't seen Monk yet, you should definitely check it out—you won’t be disappointed!). The information is your suspect, and LexiTrove is your reliable partner—your Sharona or Natalie assisting you in uncovering every concealed clue, and insight hidden within those 10-K filings.

Sure, since we are examining the restaurant industry, let's take a look at the annual distribution of restaurants as well as the division between those that are company-owned and those that are franchised.

Table 1: A breakdown of number of restaurants over the years

Upon reviewing the figures in the tables, it can be determined that there has been a rising trend in the number of restaurants, except for the last year. Additionally, it can be inferred that rather than owning restaurants, they have redirected their attention toward increasing the number of franchised establishments.

As a subsequent step, I wanted to understand the reasons behind this transition, which can be attributed to the following factors:
Stability of Earnings: The franchised model is perceived to provide more reliable earnings compared to company-operated locations.
Accelerated Growth with Lower Capital Investment:Franchising enables quicker expansion with considerably reduced capital investment by the company itself.
Enhanced Unit Economics and Profitability: Incentives provided to franchisees, like lower marketing fees, are designed to boost the overall profitability of individual restaurant units, making the development of new stores more appealing.

Next, I aimed to explore the financial core of the business—particularly, the expenses associated with running each outlet compared to the revenue generated by each location.Upon analyzing the figures shown in the table below, it can be inferred that,they have sustained a robust cost-to-revenue ratio for each outlet.

Table 2: Year wise cost of operations vs revenue generated per outlet

Over the last four years, the organization has shown steady revenue growth, increasing from $1.66 billion in 2020 to $2.1 billion in 2023 as highlighted in the Table below. Although net income experienced some ups and downs, the company was able to overcome obstacles and regain traction, with profits bouncing back from $4 million in both 2021 and 2022 to $30 million in 2023. This positive trajectory in profitability indicates a possible turnaround, showcasing strategic changes, operational improvements, or new sources of revenue that are starting to yield results. With a solid revenue foundation and enhancing profitability, the company is well-prepared for future expansion.

Table 3: Year wise breakdown of net revenue vs profit margin

Next, I would like to learn about the significant challenges and risk factors that the company is encountering, which could impact its business operations.On close evaluation as per the report following risk factors were identified

1. Cost Increases
   Labor costs, food costs (especially cheese), and other operating expenses (including those related to supply chain disruption, inflation, and climate change).
2. Delayed New Store Openings
   Potential delays in opening new restaurants, both domestically and internationally.
3. Cybersecurity Threats
   Increased risk of phishing, ransomware, and other cyberattacks.
4. Global Economic and Geopolitical Risks
   Risks to the global economy and the company's business related to the conflict in Ukraine and other international conflicts.
5. Marketing and Branding Effectiveness
   Increased costs for branding initiatives and marketing campaigns, with the risk that such initiatives might not be effective.
6. Social Media Risks
   Risks related to negative publicity on social media impacting brand reputation.
7. Competitive Pressures
   Aggressive pricing and marketing strategies by competitors, and new product/concept developments by food industry competitors.
8. Changing Consumer Preferences
   Shifts in consumer preferences or buying habits, including the growing popularity of delivery aggregators, and changes in economic conditions affecting consumer confidence and spending.
9. Health and Food Safety Concerns
   Adverse impact from global health concerns, product recalls, food quality or safety issues, foodborne illness, food contamination, and other public health concerns.
10. Technology Investments and Operational Changes
    Effectiveness of technology investments and changes in unit-level operations.

I appreciate you taking the time to go through the blog post on how to read a 10K report. The purpose of this blog post was to offer you a foundation to start with and to familiarize you with several tools that can assist in the process. Please understand that this blog post does not constitute financial advice and should not be regarded as such.If you have any recommendations, use cases, or specific issues, don’t hesitate to reach out via email at help@lexitrove.com.