If you’re a beginner day trader and aren’t sure where to do your research, there’s no need to worry.
Over 20 million forms with indispensable information from companies, brokerages, and individual brokers are available for free on the U.S. Securities and Exchanges Commission (SEC) website.
You can find information on initial public offerings (IPOs), bankruptcies, mergers, and much, much, more.
One of the most common SEC filings you might have heard of is Form 8-K.
But what exactly is it? You might be asking yourself, “How is this beneficial for me as a trader, and why is it important that I know how to read it?”
In this guide, we talk about Form 8-K including how to read Form 8-K filings. We also explain how you can use this form to generate trading ideas.
What is a Form 8K?
The 8-K, or 8K, is a form that companies file with the SEC to broadly notify shareholders about any material events that are generally unforeseen by management but affect the operations of the company.
These events could include a new CEO being appointed, a notice of delisting from a stock exchange, bankruptcy, a director stepping down, and or other major developments in the works.
When companies are releasing their earnings reports, they will file an 8-K that includes the earnings report and the corresponding earnings press release as an attached exhibit.
This form can also be filed if there is any stock option or salary adjustments that the company grants to its insiders.
An 8-K is also commonly called a “current report” because it provides an overview of a material event and SEC rules mandate companies to file the form within four business days of the occurrence of the event.
Although companies need not disclose these events immediately, the SEC rules give them four business days after the events occur within which to make an 8-K filing.
This thus creates a period during which important market-moving information is known by company insiders but not by the public — a period known as the “8-K trading gap.”
However, if a company is filing an 8-K solely to fulfill obligations under the SEC’s Regulation Fair Disclosure, it may need to do so sooner.
Types of material events contained in 8K filings
The following are some instances when a company might have to file Form 8-K:
- Departures, elections, and appointments of key principal officers or executives
- Changes in fiscal period and financials
- The creation of some financial obligations, e.g. incurrence of material debt
- An event that accelerates material obligations, such as a default on loans
- Costs associated with disposal or exit plans (plant shutdowns, layoffs, etc.)
- Changes to fundamental business practices or policies
- Amendments to shareholder rights
- Modifications to bylaws or articles of incorporation
- Corporate restructuring
- Acquisition by or of another company
- Waivers or amendments of code of ethics
- Trading suspension under employee benefit plans
- Results of shareholder votes
- Changes in shell company status
- Delisting from a stock exchange
By pulling this information directly from an 8-K filing, you can easily do your own fundamental ratio analysis. You can then compare these ratios to industry averages available on numerous free financial websites.
Where to find 8-Ks
Like all public documents filed with the SEC, 8-K filings are available to download directly on the SEC.gov website On this website, you can also find a host of other information collected by the regulator using a variety of search tools.
Another way is to look for the Form 8-K on the website of the company that you are interested in. The third method of tracking these filings is to subscribe to a data provider that publishes insider transactions.
How does Form 8-K differ from Form 10-K and Form 10-Q?
Unlike an 8-K filing, which is made with the SEC within four business days of the event, a 10-K is often is released months after the end of the fiscal year while a 10-Q is filed at the end of every fiscal quarter. Let’s take a closer look at forms 10-K and 10-Q.
Form 10-K is a report that publicly traded companies must file annually with the SEC. This document contains everything anyone would want to know about a company, including audited financial statements, executive compensation, organization structure, risk factors, as well as owned properties.
Form 10-Ks tend to be extremely in-depth, and are also very dry. But for serious traders, this document is an important piece of investment research material because it is not biased by analysts’ perspectives and contains unfiltered information about a company.
Form 10-Q, on the other hand, is a quarterly report of the performance of the company which is required by the SEC. This document consists of unaudited financial statements that offer an overview of the financial situation of the company.
The deadline for submitting a 10-Q filing depends on an available float of the company. Some of the key parts in which the traders are generally interested when analyzing a form 10-Q include share buybacks, changes in the working capital account, factors affecting inventory of the company, and changes in accounts receivables account.
How can traders use Form 8-K filings to their advantage?
Form 8-K filings inform the investors and stock traders about any of the unscheduled material events happening in the company so that they can make their decisions while considering that information.
As such, you can potentially use these filings to generate trading ideas as your decisions will be based on happening of the events in the company whose stock you are interested in or the company which you are analyzing for some purpose.
If a Form 8-K filing shows substantial executive compensation activity, that could be a bullish signal. If executives are getting compensated, it could be a sign that the company is performing well and confident about the future, and expects its share price to rise.
Similarly, Form 8-K filings that suggest a company is on the verge of bankruptcy or headed for some serious financial difficulties should not be ignored. It can be an indication that the stock will soon fall.
One regulatory filing that can help you to keep up with what is going on with the company whose stock you are interested in is Form 8-K.
As we’ve explained in this post, an 8K is a filing that is used by companies to relate irregular but important corporate events to the investing public. This document has many components shareholders and traders need to know about.
All publicly-listed companies are required to file a Form 8-K whenever there is any material event (aside from those that happen frequently, such as earnings) that would be useful to shareholders and the public.
By following 8-K filings tied to a specific stock/security, you can take a look inside the company and decide for yourself if the stock is worth trading.