Financial Statement Basics

Risk Factors

Risk Factors (Form 10-K, Item 1A)

The section of the annual report where a company itself writes «these are the risks in our business» — it is rewritten each year, so what was added and what was dropped stays on the record.

In plain terms

The annual report has a section where the company itself writes «these are the risks in our business». That is Item 1A, Risk Factors. Usually dozens of them are lined up as headings.

Since it is a document that carries legal responsibility, companies write down a broad range of risks. The list changes a little each year, and those differences remain on the record.

What it tells you

A newly added item is a risk the company began writing about that year. NVIDIA's 2022 list had a COVID item that is absent from recent lists, while items such as counterparty risk have newly appeared instead.

An item that disappeared is a fact in itself. Sometimes the risk actually receded, and sometimes it was merged into another item, so you have to compare the wording to tell which it was.

Formula

Location = **Item 1A** of the [10-K](sec-filings)
Rewritten each year — even the same risk gets worded a little differently
Length = dozens of items, depending on the company

What high or low means

Companies rewrite the same risk a little differently each year. «The issue of using AI responsibly» may be written as «the AI in our products» one year and «our technology, including AI» the next. So wording that is not identical does not necessarily mean it is a new item.

Stocklore places the lists from five annual reports side by side and lines up items that look like the same risk in one row. Each year's list and the original SEC text remain open to view.

Caution

Risk factors are not «what will happen» but «what could happen». Because companies write down even low-likelihood items to limit legal liability, being on the list does not mean the event is imminent.

Comparing counts across companies goes astray. Some companies break items down finely and others bundle them together, so having many items does not mean having many risks.

There is no fixed rule for the order either. Being listed earlier does not mean a bigger risk.

Companies that do not file an annual report do not have this item. Foreign issuers file a 20-F, which is organized differently.

Metrics to read alongside

10-K / 10-Q (SEC Filings)

Risk factors are one item inside the 10-K. Knowing what kind of document the 10-K is also makes clear where this item sits.

Current Report (8-K)

Risk factors are a list of «this could happen» updated once a year, and when an event actually occurs in between, it comes out as an 8-K. The notice and the occurrence of the same matter are handled by different filings.

20-F / 6-K (Foreign Issuer Filings)

Foreign issuers file a 20-F instead of a 10-K. The risk factors item exists in the 20-F as well, but the accounting standards and item structure differ, so the way of comparing year by year does not carry over as is.

See it in real stocks

Search US stocks on Stocklore to see Risk and other financial metrics alongside the sector benchmark.

HLT Hilton Worldwide Holdings ROKU Roku, Inc.REAL TEAM Atlassian Corporation FSLR First Solar, Inc.WFC Wells Fargo & Co.Search stocks →

Exactly how Stocklore computes this metric (formula, thresholds, SEC source) is on the methodology page.

This explanation is for information and reference only and is not a recommendation to buy or sell any security. Investment decisions and their consequences are your own.