The Fog Index: when the writing gets hard to read
Filings are mostly words, not numbers, and some companies write far more clearly than others. The Fog Index puts a number on how hard a passage is to read. This lesson shows the formula, scores two sentences that carry the same news, and explains why foggy writing deserves a second look but never settles anything by itself.
Why the writing matters
The financial statements give you numbers. The rest of a 10-K explains them in words: the risk factors, the notes and management’s discussion and analysis (the MD&A), where managers describe how the year went. That writing is where you learn why sales fell or what a new loan costs.
When the news is good, managers tend to say it plainly. When it’s bad, the temptation is to soften it: longer sentences, bigger words, the key fact tucked into the middle of a paragraph. Accounting researchers have found that, on average, companies with weaker profits tend to file annual reports that are longer and harder to read. Dense writing doesn’t prove anything is wrong, but it can slow you down at exactly the moment you should be paying attention.
How the Fog Index works
Robert Gunning, a writing consultant, created the Fog Index in the mid-1900s as a quick check on readability. It looks at only two things:
- Sentence length: the average number of words per sentence.
- Complex words: the percentage of words with three or more syllables. A syllable is a beat of sound: cat has one, pay-ment has two, cus-tom-er has three.
The formula adds those two numbers and multiplies by 0.4:
Fog Index = 0.4 × (average words per sentence + percentage of complex words)
The result roughly matches the years of schooling a reader needs to follow the text comfortably on a first read. A score of 12 suits a high-school senior. A score of 16 suits a college graduate. Above 20, most readers start rereading.
Here are two sentences that deliver the same news. Each is short enough to score by hand.
Sentence A: Sales fell this year because we lost two big customers.
- Words: 10. It’s one sentence, so the average is 10 words per sentence.
- Complex words: just one, customers (cus-tom-ers). 1 out of 10 = 10%.
- Fog: 0.4 × (10 + 10) = 0.4 × 20 = 8.0
Sentence B: Revenue declined during the period, primarily attributable to the discontinuation of certain significant customer relationships and their associated order volumes.
- Words: 20, so the average is 20 words per sentence.
- Complex words: revenue, period, primarily, attributable, discontinuation, significant, customer, relationships, associated. That’s 9 out of 20 = 45%.
- Fog: 0.4 × (20 + 45) = 0.4 × 65 = 26.0
| Sentence | Words per sentence | Complex words | Fog |
|---|---|---|---|
| A (plain) | 10 | 10% | 8.0 |
| B (foggy) | 20 | 45% | 26.0 |
Same facts, more than three times the score. Sentence B also hides two things A says outright: who lost the customers (we did) and how many (two). Real filings are scored over whole sections, thousands of words long, so one sentence never decides the result. But the same habits, multiplied, add up.
One caution about the count. Different versions of the rule treat a few words differently: some skip proper names, some skip common three-syllable words, some skip endings like -ed or -es. So a score done by hand and a score done by software can differ by a point or two on the same passage. The direction is what matters, not the second decimal.
Reading the card
On a Filing.fyi company page, the Fog Index card reads:
| Fog Index | Card reading |
|---|---|
| Below 14 | Plain English |
| 14 to 18 | Dense |
| 18 and up | Obfuscatory prose |
Obfuscatory means written in a way that makes the meaning harder to see. Business and legal writing is wordy by habit, so high readings are common in filings. A reading far above similar companies, or a jump from last year, is the part worth noticing.
Why dense writing can hide bad news
Readers skim. A long sentence packed with big words wears people out, and a tired reader is more likely to skip the clause that matters. A few habits do most of the work:
- Burying the point. The bad fact sits in the middle of a long sentence, after a cushion of good news.
- Hiding who acted. Phrases like costs were incurred never say who made the decision.
- Soft words for hard events. Layoffs become workforce optimization; a lost contract becomes a discontinued relationship.
None of that is proof of wrongdoing. It’s a signal to slow down and read the passage twice, then check it against the numbers.
Where the Fog Index falls short
- Some industries need long words. A drug company has to write about clinical trials and pharmaceutical approvals. A chipmaker writes about semiconductors. Their scores run high even when the writing is honest and clear for the field. Compare a company with others in the same industry, or with its own past filings.
- Long doesn’t always mean hard. Company, customer and everyday all count as complex words, though nearly everyone knows them.
- Required legal language. Some sections repeat standard wording that lawyers and the rules expect, which pushes the score up for every company alike.
- It counts, it doesn’t understand. A plain sentence can still be false, and a foggy one can be perfectly true. The formula measures length, not honesty.
Where to see it on Filing.fyi
Each company page has a Fog Index card with the score and its reading. If it says Obfuscatory prose, open the latest 10-K from the filing timeline and read the MD&A and risk factors slowly. Ask what each long sentence is really saying, and whether the numbers agree. The Fog Index also feeds the page’s health score, as explained in how to read a company page. For a map of where each section sits, see the 10-K tour, and for a numbers-based clue to pair with the writing, see the Beneish M-Score.
- Fog Index
- A readability score: 0.4 times the sum of average sentence length and the percentage of complex words.
- Syllable
- A single beat of sound in a word.
- Complex word
- For this formula, any word with three or more syllables.
- Readability
- How easily a reader can understand a piece of writing on a first read.
- Obfuscatory
- Written in a way that makes the meaning harder to see.
- MD&A
- Management’s discussion and analysis, the 10-K section where managers explain the results.
- Fog Index = 0.4 × (average words per sentence + percentage of words with three or more syllables).
- The score roughly equals the years of schooling needed to read the text comfortably.
- Dense writing can bury bad news, so a high score is a reason to read slowly.
- Technical industries score high naturally; compare with peers and with past years.
- Clear writing can still be wrong, and foggy writing can still be true.
This lesson is education, not investment advice. Examples use made-up companies and round numbers unless a real filing is named.