Company reports
How to read a 20-F
Updated
A 20-F is the annual report a foreign private issuer files instead of a 10-K. It covers the same ground in a different order and with different item numbers, and it carries the pay and ownership disclosures that a U.S. company would put in its proxy statement. This path takes the items in the order an analyst reads them: the business, then the risks, then management’s account of the year, then the statements and notes.
Cover: Cover page
The cover page identifies the company and its reporting status, and it states which accounting standards the financial statements follow. That one check box decides how comparable the numbers are with U.S. companies.
What to look for
- The basis of accounting: U.S. GAAP, IFRS as issued by the International Accounting Standards Board, or another framework. Statements under IFRS as issued by the IASB use different line items and are not reconciled to U.S. GAAP; statements under any other framework must be.
- The number of shares outstanding for each class as of the end of the fiscal year the report covers, which is the count to use for per-share figures.
- The filer status and whether the company is an emerging growth company.
- The fiscal year end. A 20-F is due four months after it, two months later than a large accelerated filer’s 10-K.
Questions worth asking
- Which accounting standards do this filing’s financial statements follow, and how many shares were outstanding at year end?
Item 4: Information on the Company
Item 4 is the company describing itself: its history, its business, its group structure and its main properties. It plays the part of a 10-K’s Items 1 and 2 together. Read it before any summary so that you form your own picture first.
What to look for
- The business overview: what the company sells, to whom, in which countries, and how it gets paid.
- The principal markets, including a breakdown of revenue by activity and by geography.
- Seasonality, dependence on patents, licences or key contracts, and the regulation the business operates under.
- The organizational structure, which lists the significant subsidiaries and the countries they sit in.
- Major capital expenditures and divestitures in progress, and how they are being financed.
Questions worth asking
- In plain language, what does this company sell, who buys it, and how does it make money?
- Does this filing disclose any customer, supplier or geographic concentration?
Item 3.D: Risk Factors
Item 3 is headed Key Information, but its first three parts are usually reserved or not applicable in an annual report, so in practice it is the risk factors. As with a 10-K, much of the list is boilerplate; the information is in what is specific to this company and what changed.
What to look for
- Risks that name a specific customer, product, regulator, country or lawsuit, rather than risks that could apply to any company.
- Risks arising from being a foreign company: currency, the law of the home country, and holding shares through American depositary receipts.
- Whether the company says it is or may become a passive foreign investment company, which has adverse U.S. tax consequences for U.S. holders.
- Risks from a controlling shareholder or dual-class shares, which limit what other holders can change.
- Risks that are new or expanded compared with last year, and phrases such as "we have experienced" that mark a risk that has already materialized.
Questions worth asking
- Which three risk factors in this filing are most specific to this company rather than boilerplate?
- Does the company say it is or may be a passive foreign investment company?
Item 5: Operating and Financial Review and Prospects
Item 5 is the 20-F’s management discussion: why results moved, where the cash went, and which trends and accounting judgements matter. It is the most information-dense section and the one to read against last year’s.
What to look for
- Operating results, and whether each explanation names a volume, price or mix driver rather than restating the change.
- The effect of currency movements, often shown as growth at constant currency alongside the reported figure.
- Liquidity and capital resources: cash generated, borrowings, commitments, and whether working capital is sufficient for present requirements.
- Trend information: the known trends and uncertainties management expects to affect results.
- Critical accounting estimates, which IFRS filers put in the notes instead, and any non-GAAP or non-IFRS measures with what they add back.
Questions worth asking
- According to the operating and financial review, what drove the change in revenue and operating profit this year?
- What does management say about liquidity, borrowings and its ability to fund operations?
Item 11: Market Risk
Item 11 quantifies exposure to interest rates, currencies and commodity prices, usually as the effect of a hypothetical move. For a foreign filer the currency exposure is often the one that matters most. Some companies point to the risk factors or the notes instead.
What to look for
- The size of a hypothetical rate or currency move on income, and whether that is small or large relative to operating profit.
- Which currencies the company earns and spends in, and whether hedging covers revenue, costs or both.
- How much debt is floating rate and whether it is hedged.
Questions worth asking
- How sensitive is this company to interest rates and currency moves, and what does it hedge?
Item 18: Financial Statements and Notes
The audited statements are the only numbers in the report an independent party has checked. In most 20-Fs they are attached at the end as F-pages, and Item 8 points to them. The notes carry the substance: revenue recognition, segments, debt and contingencies.
What to look for
- The auditor’s report: the opinion, any going-concern paragraph, and the critical audit matters.
- The accounting basis, and under IFRS the line items with different names, such as profit for the year and the statement of financial position.
- Cash flow from operations against profit over several years, the fastest check on earnings quality.
- The segment note, and the notes on revenue, borrowings, leases, contingencies and related parties.
- Item 8 itself, which covers legal proceedings and dividend policy.
Questions worth asking
- What opinion did the auditor give, and what critical audit matters did it identify?
- What do the notes say about revenue recognition, borrowings and contingencies?
Item 6: Directors, Senior Management and Employees
A foreign private issuer files no proxy statement, so the board, its practices and executive pay are disclosed here. Pay may be given as a total for the group rather than person by person, where the home country does not require individual figures.
What to look for
- Compensation of directors and senior management, and whether it is disclosed individually or in aggregate.
- Board practices: terms of office, committees and their members.
- Share ownership by directors and officers, and the terms of share-based awards.
- Any recovery of erroneously awarded compensation under the clawback policy.
Questions worth asking
- How much were the directors and senior management paid, and is it disclosed per person or in total?
Item 7: Major Shareholders and Related Party Transactions
Item 7 names the holders of 5% or more of the shares and the dealings between the company and its insiders. It is where a controlling shareholder becomes visible.
What to look for
- Who owns 5% or more, and whether any holder controls the company or has different voting rights.
- Significant changes in major holdings over the past three years.
- Transactions with directors, major shareholders and affiliates, and whether they are on arm’s-length terms.
Questions worth asking
- Who are the major shareholders, and does any one of them control the company?
Item 15: Controls and Procedures
Management states whether internal control over financial reporting worked, and for larger companies the auditor attests to it. A material weakness here means the statements rest on a process known to be flawed.
What to look for
- The conclusions on disclosure controls and on internal control over financial reporting: effective or not.
- Any material weakness, what caused it, and the remediation plan.
- Whether the auditor attested to internal control.
Questions worth asking
- Does management conclude that internal control over financial reporting was effective, and is any material weakness disclosed?
Items 16A to 16K: Governance, Auditor and Buybacks
Item 16 collects short disclosures that matter out of proportion to their length: the audit committee, the code of ethics, the auditor’s fees, share repurchases, a change of auditor, and how the company’s governance differs from U.S. listing standards.
What to look for
- Item 16C, the fees paid to the auditor, and how much is for work other than the audit.
- Item 16E, purchases of the company’s own shares during the year.
- Item 16F, any change in the auditor and whether there were disagreements.
- Item 16G, where the company explains which U.S. exchange governance rules it does not follow because home-country practice applies.
- Item 16I, which applies in years when the SEC has identified the company as using an auditor the U.S. audit regulator cannot fully inspect.
Questions worth asking
- How does this company’s corporate governance differ from U.S. listing standards, and did it change auditor?
Item 19: Exhibits
The exhibit index lists the documents filed with the report. It is where the actual contracts and the articles of association live.
What to look for
- Exhibit 8, the list of subsidiaries, which shows the legal structure and the countries the company operates through.
- Exhibit 4 material contracts and Exhibit 2, the description of the securities and holders’ rights.
- Exhibits 12 and 13, the officer certifications, and Exhibit 97, the clawback policy.
Questions worth asking
- Which material contracts and subsidiaries are listed in the exhibit index of this filing?
Read it with a guide beside the text
Scrutar has a guided read mode in the filing viewer. It walks the same path beside the document, jumps to each section, and lets you put each question above to Ask Scrutar about that filing alone, so the answer is cited back to the text you are reading.