How to Read a 20-F Annual Report: Investor's Guide to Foreign Stock Filings
Every guide to Form 20-F is written for companies filing it—not investors reading it. This guide shows you which sections to focus on, what to skip, and how to spot red flags in foreign company annual reports.
How to Read a 20-F Annual Report: Investor's Guide to Foreign Stock Filings
Last Updated: December 28, 2024
You add Novo Nordisk to your watchlist. You search SEC EDGAR for the annual report. Instead of a familiar 10-K, you find something called Form 20-F.
It's 200+ pages with different item numbers, unfamiliar sections, and financial statements in a currency you don't recognize.
Every 20-F guide online is written for companies filing the form—lawyers and compliance teams. This guide is for investors reading it.
Quick Answer: Form 20-F is the annual report for foreign companies (Foreign Private Issuers). It contains the same core information as a 10-K—risk factors, MD&A, financials—but with different item numbers and a few sections unique to international investing. Here's your roadmap.
20-F vs 10-K: The Quick Translation
The 20-F covers the same ground as a 10-K, just organized differently. Here's the mapping:
| 20-F Item | What It Is | 10-K Equivalent | Read? |
|---|---|---|---|
| Item 3.D | Risk Factors | Item 1A | Yes |
| Item 4.B | Business Overview | Item 1 | Yes |
| Item 5 | Operating and Financial Review (MD&A) | Item 7 | Yes |
| Item 5.E | Critical Accounting Estimates | Item 7 | Yes |
| Item 5.F | Off-Balance Sheet Arrangements | Item 7 | Yes |
| Item 8 | Financial Information | Item 8 | Yes |
| Item 11 | Quantitative Market Risk | Item 7A | Skim |
| Item 16.I | Disclosure Regarding Foreign Jurisdictions | N/A | Yes |
| Item 16.K | Cybersecurity | Item 1C | Yes |
| Items 2, 6, 7, 9, 10, 12 | Administrative/Boilerplate | Various | Skip |
The key difference: 20-F has several items that don't exist in 10-K filings, including audit jurisdiction disclosures that are critical for foreign stock analysis.
The Sections That Matter Most
Item 3.D: Risk Factors
Often more detailed than US company 10-Ks because foreign companies face additional risk categories:
- Currency risk - How exchange rate movements affect reported earnings
- Regulatory risk - Home-country regulations and political environment
- Geopolitical risk - Trade tensions, sanctions, country-specific issues
- Tax jurisdiction risk - Complex international tax structures
What to look for: Specific quantification of currency exposure. Generic "we face currency risk" is boilerplate. Good disclosures specify which currencies, hedging policies, and sensitivity analysis.
Item 5: Operating and Financial Review (MD&A)
This is your 10-K Item 7 equivalent. It contains:
- Item 5.A - Operating Results (year-over-year analysis)
- Item 5.B - Liquidity and Capital Resources
- Item 5.E - Critical Accounting Estimates
- Item 5.F - Off-Balance Sheet Arrangements
What to look for: Pay attention to how management explains performance in constant currency vs. reported currency. A company showing 15% revenue growth might only have 8% growth in constant currency—the difference is exchange rate movements, not business improvement.
Item 8: Financial Statements
Contains the audited financial statements, but expect differences from US companies:
- Most FPIs report in IFRS, not US GAAP
- Financial statements are often in home-country currency (EUR, DKK, TWD)
- Some line items have different names (e.g., "turnover" instead of "revenue")
What to look for: Note 1 to the financial statements specifies which accounting standard (IFRS or GAAP) and which currency is used.
Item 16.I: Disclosure Regarding Foreign Jurisdictions (Critical)
This is the section that doesn't exist in 10-K filings—and it's increasingly important.
Item 16.I addresses whether the company's auditor is subject to PCAOB (Public Company Accounting Oversight Board) inspection. If the auditor is located in a country that restricts PCAOB access, this section must disclose it.
What to look for: Any disclosure indicating the auditor cannot be fully inspected. This was the basis for delisting threats against Chinese ADRs in 2022-2023.
Item 16.K: Cybersecurity
New as of 2023, this mirrors the cybersecurity disclosure requirements for US companies. Foreign companies must describe their cybersecurity risk management, governance, and any material incidents.
Red Flags Unique to 20-F Filings
Foreign company annual reports have risk indicators that don't appear in US 10-K filings:
1. Excluded Assets from Internal Controls
Watch the internal controls section (Item 15). Companies can exclude recent acquisitions from their assessment of internal controls—sometimes for an extended period.
Example: Large acquisitions completed close to fiscal year-end are often excluded from internal controls assessments. When an acquisition represents a significant portion of total assets (e.g., 15-20%), this exclusion is material and worth scrutinizing.
Why it matters: Excluded assets mean the company hasn't verified that acquisition accounting is reliable. Large exclusions (>10% of assets) warrant extra scrutiny of acquisition-related line items.
2. Audit Jurisdiction Issues (Item 16.I)
If Item 16.I contains extensive disclosure about PCAOB inspection limitations, this is a red flag. The auditor may not be subject to the same oversight as US auditors.
Example: Several Chinese ADRs faced delisting risk when PCAOB couldn't inspect auditors. While access was restored in 2022, this remains an ongoing concern for companies domiciled in certain jurisdictions.
3. Concentrated Ownership Structures
Many foreign companies have controlling shareholders with voting structures that differ from economic interest.
Example: Novo Nordisk's 20-F discloses that the Novo Nordisk Foundation controls 75.78% of voting rights while holding a smaller economic stake. This is common in European companies but rare in US listings.
What to look for: Item 7 (Major Shareholders) discloses voting vs. economic interests. Concentrated control isn't inherently bad, but understand who controls the company before investing.
4. Currency Translation Swings
Item 5.B should explain significant currency impacts. Large unexplained swings in "currency translation adjustments" in Other Comprehensive Income (OCI) suggest the company has major currency exposure without adequate hedging.
5. Late Filing
20-F filings are due within 4 months of fiscal year-end—more lenient than the 60-90 day 10-K deadline. If a company files late or requests an extension, it often signals accounting issues or internal control problems.
IFRS vs US GAAP: What You Need to Know
Most 20-F filers report in IFRS (International Financial Reporting Standards). Key differences investors should understand:
| Item | IFRS | US GAAP |
|---|---|---|
| R&D Costs | Capitalized (if criteria met) | Expensed immediately |
| Inventory | No LIFO allowed | LIFO permitted |
| Goodwill | Annual impairment test | Annual impairment test (same) |
| Lease Accounting | Similar to GAAP post-2019 | ASC 842 |
| Revenue Recognition | IFRS 15 (similar to ASC 606) | ASC 606 |
Important: The SEC eliminated mandatory IFRS-to-GAAP reconciliation in 2007. Most foreign companies no longer provide a detailed reconciliation table. If you need GAAP comparability, you'll have to make adjustments yourself.
Check Item 5.E (Critical Accounting Estimates) for explanations of significant accounting judgments. This section often highlights where IFRS treatment differs materially from how a US company might report.
Investor Checklist: 20-F Review in 30 Minutes
When reviewing a foreign company's annual report, focus on these sections:
- Item 3.D (Risk Factors): Note currency, regulatory, and geopolitical risks specific to this company
- Item 5 (MD&A): Compare constant-currency growth to reported growth
- Item 5.E (Accounting Estimates): Identify areas where management judgment significantly affects reported numbers
- Item 7 (Major Shareholders): Check for concentrated voting control
- Item 8 (Financials): Verify which accounting standard and currency is used
- Item 15 (Controls): Check for excluded assets or material weaknesses
- Item 16.I (Audit Jurisdiction): Confirm auditor is subject to PCAOB inspection
- Item 16.K (Cybersecurity): Note any material incidents disclosed
Real Example: Novo Nordisk 2024 20-F
To illustrate, here's what you find in Novo Nordisk's annual report:
| Item | Key Finding |
|---|---|
| Company | Novo Nordisk (NVO), CIK 0000353278 |
| Accounting Standard | IFRS |
| Currency | Danish Krone (DKK) |
| Gross Margin | 84.7% (exceptional for pharma) |
| Invested Capital | Negative (-41.3B DKK) - normal for asset-light model |
| Ownership | Novo Nordisk Foundation controls 75.78% voting rights |
| Excluded Assets | Recent acquisitions may be excluded from controls assessment |
This gives you a quick profile before diving into detailed analysis.
Related Guides
- How to Find Quarterly Earnings for Foreign Stocks - Finding 6-K quarterly filings
- Form 6-K Explained: The Catch-All SEC Filing - Understanding interim disclosures
- Why Foreign Companies Don't File 10-Q - The regulatory background
Explore More Earnings Quality Analysis
This article is part of our comprehensive Earnings Quality Hub, which covers cash flow verification, accounting red flags, and quality screening frameworks.
Related earnings quality research:
- Earnings Quality: The Complete Framework — 3-metric framework, sector thresholds, and red flag checklist
- Form 6-K Explained — The catch-all SEC filing for foreign companies
- REIT Hidden Liabilities — What FFO doesn't tell you
Frequently Asked Questions
MetricDuck Research
SEC filing analysis and XBRL data extraction for fundamental investors