The 10-Q: what changes from quarter to quarter
The 10-K comes once a year. The 10-Q fills the gaps in between. This lesson shows how to read a quarterly report as a quick health check, which changes to watch, and how not to be fooled by the seasons.
What a 10-Q is
A quarter is a three-month slice of a company’s year. A company’s year, called its fiscal year, does not have to match the calendar, but it always has four quarters.
The 10-Q is the report a public company files after each of the first three quarters. There is no 10-Q for the fourth quarter, because the 10-K covers the whole year. Larger companies have 40 days after the quarter ends to file; smaller ones have 45.
A 10-Q is shorter than a 10-K. It has the main financial statements, a shorter management discussion, and updates on risks and lawsuits. One big difference: the numbers are reviewed by the auditor, not audited. A review is a lighter check. The auditor asks questions and looks for anything odd, but does not test the records in depth.
How the numbers are laid out
A 10-Q usually shows the income statement two ways: for the latest three months, and for the year so far. Each is set beside the same period one year earlier. The balance sheet compares the end of the quarter with the end of the last fiscal year. The cash flow statement usually covers the year so far only.
That year-so-far view matters. In a third-quarter 10-Q, the cash flow numbers cover nine months, not three. If you want just the third quarter, subtract the six-month figure from the last 10-Q.
Compare with the same quarter last year
Most businesses have seasons, times of year when sales are naturally high or low. A toy maker sells most of its toys before the winter holidays. An ice cream shop does its best business in summer.
So comparing one quarter with the quarter right before it can mislead you. A drop from summer to fall may just be the weather. The fair test is to compare a quarter with the same quarter a year earlier. Summer against last summer. That is called a year-over-year comparison.
Harbor Kayak Rentals Inc. earns most of its money in the warm months. Here are its sales.
| Quarter | Last year | This year |
|---|---|---|
| Q2 (April to June) | $3.0 million | $3.3 million |
| Q3 (July to September) | $5.0 million | $4.6 million |
Step 1, the quarter-to-quarter view. This year’s Q3 against this year’s Q2: $4.6 million − $3.3 million = $1.3 million more. That is $1.3 million ÷ $3.3 million, about 39% growth. Looks great.
Step 2, the year-over-year view. This year’s Q3 against last year’s Q3: $4.6 million − $5.0 million = −$0.4 million. That is −$0.4 million ÷ $5.0 million = −8%. Sales actually shrank.
The jump from Q2 to Q3 was just summer arriving. Compared fairly, Harbor had a weaker summer than last year. That is the question to take to the management discussion: why?
Five changes worth tracking
You don’t need to study every line. These five changes catch most problems early.
- Receivables versus sales. Accounts receivable is money customers owe for things already delivered. If receivables grow much faster than sales, the company may be booking sales it is struggling to collect, or giving customers very loose payment terms.
- Inventory versus sales. Inventory is goods made or bought but not yet sold. If it piles up faster than sales grow, demand may be cooling. Unsold goods can end up sold at a discount or written off.
- Margins. A margin is profit as a share of sales. If the company keeps 30 cents of each sales dollar after the cost of making its product, its gross margin is 30%. A shrinking margin can mean rising costs or price cuts.
- Cash from operations versus profit. Profit is an accounting figure. Cash from operations is the cash the business actually brought in from its main work. If profit stays healthy while operating cash keeps falling, ask why. The cash flow lesson goes deeper.
- Share count. The number of shares outstanding. If it keeps rising, often from stock handed to employees, each existing share owns a smaller slice. If it falls, the company is likely buying back shares.
Maple Bikes Inc. reports its third quarter. Compared with the same quarter last year:
| Line | Last year Q3 | This year Q3 | Change |
|---|---|---|---|
| Sales | $20 million | $22 million | +10% |
| Accounts receivable | $4 million | $6 million | +50% |
Sales grew by $2 million ÷ $20 million = 10%. Receivables grew by $2 million ÷ $4 million = 50%. Five times faster.
Another way to see it: last year customers owed $4 for every $20 of quarterly sales, which is 20%. This year they owe $6 for every $22, about 27%. Customers are taking longer to pay, or some sales may never turn into cash. One quarter like this is a question. Three in a row is a pattern.
The limits of quarterly numbers
- Not audited. The auditor only reviews 10-Q numbers. The full audit comes once a year with the 10-K.
- Noisy. Three months is a short window. A storm, a delayed shipment or a one-time cost can swing a single quarter without changing the business.
- Short-term pressure. Managers know people watch each quarter. Some may delay useful spending, such as research or repairs, just to make one quarter look better. That helps the next report and hurts the long run.
A useful fix is to add up the last four quarters. This is called trailing twelve months. It always covers one full year, so the seasons cancel out, and it updates every quarter.
- 10-Q
- The quarterly report a public company files after each of its first three quarters.
- Fiscal year
- The 12-month period a company uses for its accounts; it need not match the calendar.
- Reviewed versus audited
- A review is a lighter check by the auditor; an audit tests the records in depth.
- Year-over-year
- Comparing a period with the same period one year earlier.
- Accounts receivable
- Money customers owe the company for things already delivered.
- Inventory
- Goods the company has made or bought but not yet sold.
- Margin
- Profit as a percentage of sales.
- Trailing twelve months
- The total of the four most recent quarters.
Where to see it on Filing.fyi
Each company’s filing timeline lists its 10-Qs alongside its 10-Ks. When a new 10-Q arrives, the company page refreshes its analysis and scores. If you follow a company on your free watchlist (up to 50 companies), you can come back after each quarter and see what moved. Find companies from the ticker list.
- The 10-Q is a quarterly check-up; its numbers are reviewed, not audited.
- Compare a quarter with the same quarter last year to remove seasonal swings.
- Watch receivables, inventory, margins, cash versus profit, and share count.
- One odd quarter is a question; a run of them is a pattern.
- Adding the last four quarters gives a full-year view that updates every quarter.
This lesson is education, not investment advice. Examples use made-up companies and round numbers unless a real filing is named.