10-K Reports: Your cheat sheet to better financial reporting

10-k reports

What you’ll learn: 

  • How to use public companies’ data to your advantage (10-K reports are free and publicly available)
  • The nuances of revenue recognition, gross profit, and inventory, so that you can structure your financials accurately
  • Benchmark yourself against public companies to see how your financials stack up and where you can make improvements

We’ll walk you through what to study so you can understand what they got right (or wrong), and then apply that insight to your financials.


Why study public companies’ 10-K reports?

A lot of DTC ecommerce founders focus on product and marketing innovations because it’s what they’re good at. That means they often ignore the financial components of their business because it’s an area that’s a bit more unclear. 

But that doesn’t have to be the case. There’s a lot they can learn from public companies’ financial reporting and apply the best practices to their own business. That’s not to say that all public companies have perfect financials. Many don’t. What they do have, though, is the diligence to create and maintain solid financial reports (called 10-K reports), quarter after quarter. 

The good news? The 10-K reports of publicly traded companies are available for free and public access. Use that to your advantage by seeing what public companies got right (and what they didn’t). Then apply the practices they did to your own business. 

You can also learn which financial metrics you should be tracking and benchmark your business’ performance against theirs. This will help you pivot your strategy, improve your metrics, and use the information to do better on the metrics they’re not winning at.


Our approach to studying 10-K reports

If all of this sounds like a lot, don’t worry. In this piece, we’re going to show you how to do that by comparing the 10-K reports of two public companies. 

We’re going to define some core metrics, show “good” and “bad” examples of each as outlined in the 10-Ks, and give you pointers on how to think about your own financials to ace those metrics. 


But first, what is a 10-K report?

A 10-K is a comprehensive report on the financial performance of a publicly traded company. The SEC requires all public companies to file 10-K reports every year. The main objective behind 10-Ks is to keep investors informed of how the company is doing and thus make smarter decisions about buying or selling company shares. Anyone can access a public company’s 10-K report. You’ll typically find them on the Investor Relations page of the company website. 

We’ll take a look at the 10-Ks of two public companies – e.l.f. and Laird Superfoods – and discuss their financials in detail.


Insights from e.l.f. and Laird Superfoods

Comparing business strategies

The business strategy section is where the public company gives an overview of its business, as well as its vision, mission, company culture, and so on.  

With e.l.f., you can see the passion for their brand coming through in the way they talk about their vision, how they came about, what motivates them, and the values they uphold. 

In this excerpt, for instance, you see how they demonstrate their commitment to doing the right thing for animals and the planet as well as their human customers.

Culture and Commitments

By standing with every eye, lip, face and paw, we are committed to creating a culture internally—and in the world around us—where all individuals are encouraged to express their truest selves, are empowered to succeed, and where we strive to do the right thing for people, the planet and our furry friends. We are committed to:

    • Encourage Self Expression. We celebrate diversity and make the best of beauty accessible.
    • Empower Others. We provide equal opportunities for growth and success.
    • Embody Our Ethics. We strive to do the right thing for all people, the planet and our furry friends.

Source: USA Securities and Exchange Commission (2023, March 31). Form 10-K, e.l.f Beauty, Inc. Sec.gov. Page 5.

With Laird, the tone is much more conservative – a description of what they do, what the market opportunity is, and the regulations they follow. 

Employee Safety Regulations

We are subject to certain safety regulations, including OSHA regulations. These regulations require us to comply with certain manufacturing safety standards to protect our employees from accidents. We believe that we are in material compliance with all employee safety regulations applicable to our business.

As we work in a critical infrastructure industry as part of the nation’s food supply, we have implemented health and safety policies for all of our staff, including a transition to telework wherever reasonably possible; enacted strict sanitation protocols throughout our operations; and restricted access to visitors. Our top priority is the health and safety of our employees, and we are following published guidelines by the Centers for Disease Control and Prevention and other governmental health organizations in implementing procedures to protect our employees.

Source: USA Securities and Exchange Commission (2023, March 31). Form 10-K, Laird Superfood, Inc. Sec.gov. Page 13.


Finding the right sales mix

e.l.f. is consistently going in on retail and outsources all its production. They’ve figured out what they’re good at and are doubling down on that. 

On the other hand, Laird’s 10-K shows that they recently pivoted strategies. They previously manufactured their own products, but now they’ve switched to a copacker. They’re still figuring out what their manufacturing/marketing mix should be – which is why they’re currently losing money (as we’ll talk about below). 


The more profitable public companies also tend to be the ones that go beyond the basics when outlining what they do. 

It’s good practice to chalk out your strategy, mission, values, and so on when you’re drawing up your financials, if only for your own clarity on what you want your ecommerce business to stand for. And if you haven’t already, focus on figuring out (and sticking to) an optimal sales mix. 


Get clear on definitions and disclosures

As an ecommerce founder, there are some financial concepts you should be aware of in order to understand how your financials are constructed. Let’s talk about a few of these:

Revenue recognition

Here’s how revenue recognition is defined in e.l.f.’s 10-K:

Revenue recognition

We recognize revenue when control of promised goods or services is transferred to a customer in an amount that reflects the consideration that we expect to receive in exchange for those goods or services. Control of the substantial majority of the products that we sell is transferred at a point in time. Factors that determine the specific point in time a customer obtains control and a performance obligation is satisfied are when we have a present right to payment for the goods, whether the customer has physical possession and title to the goods, and whether significant risks and rewards of ownership have transferred. Delivery is typically considered to have occurred at the time the title and risk of loss passes to the customer.

Form 10-K, e.l.f Beauty, Inc. Page 48.

Core insight

Revenue is recognized when the control of the product is transferred to the customer, i.e. when the order is shipped out or fulfilled – not when you receive payment. 


Most companies have no idea when they’re recognizing revenue. Do you know when your company recognizes revenue?


Gross profit

Here’s the definition of gross profit:

Gross profit

Gross profit is our net sales less cost of sales. Cost of sales includes the aggregate costs to procure our products, including the amounts invoiced by our third-party contract manufacturers for finished goods as well as costs related to transportation to our distribution center, customs and duties. Cost of sales also includes the effect of changes in the balance of reserves for excess and obsolete inventory. Gross margin measures our gross profit as a percentage of net sales.

We have an extensive network of third-party manufacturers from whom we purchase substantially all of our finished goods. We have worked to evolve our supply chain to increase capacity and technical capabilities while maintaining or reducing overall costs as a percentage of sales.

Historically, we have improved our gross margin largely through changes in our product mix, pricing, and cost reductions in our supply chain. Other drivers of changes in gross margin, which could have a positive or negative impact, include fluctuations in exchange rates, certain costs related to space expansion and retailer activity, changes in customer mix, and changes in the balance of reserves for excess and obsolete inventory, among other things.

Form 10-K, e.l.f Beauty, Inc. Page 43.

Core insight

A lot of businesses are confused about what exactly goes into gross profit. 

The 10-K sets this straight – it only includes the price of the product, customs, and duties, and the cost of getting the product to the distribution center. 

Note that it doesn’t include any merchant fees, shipping costs, or Amazon fees. 


It’s critical to follow a universal methodology when measuring metrics like gross profit. We see a lot of ecommerce founders following different definitions of gross profit and looking to the big guys (aka the public companies) is a great way to make sure you’re using the right methodology. Does your gross profit include the right components?



Here’s the definition of inventory:


Inventory, consisting principally of finished goods, is stated at the lower of cost and net realizable value. Cost is principally determined by the first-in, first-out method. The Company also records a reserve for excess and obsolete inventory, which represents the excess of the cost of the inventory over its estimated market value. This reserve is based upon an assessment of historical trends, current market conditions and forecasted product demand. The Company recorded an adjustment for excess and obsolete inventory, which is presented as a reduction to inventory of $6.6 million and $4.5 million as of March 31, 2023 and March 31, 2022, respectively.

Form 10-K, e.l.f. Beauty, Inc. Page 71.

Core insight

Most public companies record inventory at the cost amount as determined by the FIFO (first in first out) method, plus a reserve for excess/obsolete inventory. 

As a private ecommerce company, you might not need an excess reserve, but you certainly need to know what your inventory value is. Most ecommerce firms don’t know this, or – worse –  they run inventory on a cash basis.


Ideally, you want to periodically update your inventory value at either cost of goods sold or net realizable value, whichever is lower.


Evaluate your performance using KPIs

We’ll contrast how e.l.f. and Laird Superfoods have performed on some core KPIs so you have an idea of how to evaluate your own performance. We’ll look at: 

  • Gross profit
  • Operating income
  • Inventory turnover

A note before we compare KPIs: If you’re having difficulty reading the below images, go ahead and navigate to the actual graph in the 10-K reports linked below.


A look at e.l.f.’s KPIs:

inventory turnoverForm 10-K, e.l.f. Beauty, Inc. Page 44

The chart above shows what e.l.f. Cosmetics has reported for 2021, 2022, and 2023 (year ending 31st March). 

The company’s gross profit has been consistently high – over 60% of its sales in all three periods. 

Operating income as a percentage of sales has also gone up steadily, from 3% in 2021 to 8% in 2022 to 12% in March 2023. 

And when we calculate inventory turnover, it comes out to 1.65 in 2022 and 2.3 in 2023 – an increase there too.

What does this mean? e.l.f. has been making consistently healthy numbers and is likely to keep doing so.


Compare to Laird Superfood’s KPIs:

Laird reportForm 10-K, Laird Superfood, Inc. Page 35.

Here’s what Laird has reported for 2021 and 2022 (year ending 31st December).

First, gross profit. As a percentage of net sales, this was 25.6% in 2021 but dropped to 14.5% in 2022. As they explain later on in the 10-K, this was due to a shift to a new manufacturing model that also involved changing locations. 

That also partially explains the huge operating loss they had in 2022, at 114%. However, even in 2021, they incurred a large operating loss of 60%. 

You’ll notice here that Laird’s inventory turnover is pretty good – 2.64 in 2021 and 5.46 in 2022. That’s higher than e.l.f.’s. And yet, they’re making a gigantic operating loss. This is due to two reasons:

  • A rise in the cost of goods sold as a result of their recent shift to a new manufacturing model (more on that below)
  • Inventory obsolescence due to a product quality issue (they mention this in the 10-K later on)

Clearly, Laird has a long way to go before it can run profitably. 


To excel at any financial KPI, you need to know what factors will move the needle. And remember – for any KPI, you need to see how it stacks up against the rest of your KPIs to get the whole picture. 


Bottom line

There’s a lot that private DTC businesses can learn from 10-Ks about how to professionalize their financials. 

Not all public companies are doing equally well, but they are on point with their reporting and controls – which is what you should aim for as well. The better you understand your financials, the more clearly you’ll know where your DTC business is and where it can be. And publicly available reports can help you achieve just that.

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