Lesson 3 of 6
The evidence you will read
Choosing rather than collecting. Which filings, which years, which notes, in what order, and what gets left unread on purpose and written down as unread.
By Javier Sanz
Founder of ValueScreener. Built Ninety Nine, a securities services provider, and sold it to a tier-one global bank; ran operations and internationalization at Alpaca, the brokerage API.
Who writes thisEditorial processLinkedIn (opens in a new tab)X (opens in a new tab)
In one minute
- Reading is a choice about what to leave out, and the list of what you left out belongs in the document.
- Figures before narrative, always, because a narrative read first supplies the questions you then go looking to answer.
- Three filings read closely beat ten skimmed, and the three are chosen by what the sentence needs.
An annual report runs to well over a hundred pages and there are ten of them. A reader who tries to read everything reads nothing twice, which is where the understanding is.
An order of reading, and what is deliberately not in it
Read first, and twice
- The statements themselves, for the years your sentence needs.
- The note behind the one figure your sentence rests on.
- The debt note and the commitments note.
- The accounting policies for anything your figure depends on.
Left unread on purpose
Written down as unread
- The management discussion, until after the figures.
- Risk factors, which are written by lawyers to be exhaustive.
- Prior-year narrative, unless a restatement sends you there.
- Every segment you are not asking about.
The left column is read closely. The right is read only if a figure in the left column sends you there.
Figures before narrative
This is the one rule that changes the most.
Reading the management discussion first means arriving at the statements with the company's explanation already in your head, and the explanations offered are usually reasonable, which is the problem. The applied course puts it exactly: a question you write from the table is yours, not management's.
So print the figures, form the questions, and only then read what the company says about them. The narrative is then evidence about the company's own account of itself, which is a genuinely useful thing and a different thing from a starting point.
Which years
Not all of them. The years your sentence needs, plus the year before and the year after any movement you are asking about.
A movement needs the year before it to establish that it was a movement, and the year after to establish whether it persisted. Three filings read that way beat ten skimmed, and the applied cyclical course is built on nine because its question was about a window rather than about a movement.
Which notes
The one your figure comes from, always. Then the debt note and the commitments note, because those carry the obligations that decide when anything else does. Then the accounting policy for anything your figure depends on, because a policy change moves a figure without anything happening.
Everything else is read on demand: a note is opened because a figure sent you there, not because it exists.
Write down what you did not read
One line in the document: which sections were skipped and why. It costs nothing and it does two things.
It stops a future reader, who is you, assuming the work covered ground it did not. And it makes the skipping deliberate rather than accidental, which is the difference between a choice and an omission.
Check yourself
Why read the figures before the narrative?
- Because the narrative is usually unreliable
- Because a narrative read first supplies the questions, and the explanations it offers are usually reasonable
- Because the narrative repeats the figures
Show the answer
Answer: B.
Read afterwards, the narrative becomes evidence about the company's own account of itself, which is useful and is a different thing from a starting point.Which years should be read closely?
- All ten, in order
- The years the sentence needs, plus the year before and the year after any movement being asked about
- The most recent three, always
Show the answer
Answer: B.
The year before establishes that it was a movement and the year after whether it persisted. Three read closely beat ten skimmed.Why write down what you did not read?
- To show the work was systematic
- So a future reader does not assume the work covered ground it did not, and so the skipping was a choice rather than an omission
- Because the disclaimer requires it
Show the answer
Answer: B.
It costs one line and the future reader is you, in two years, with no memory of what you looked at.Sources
- Toll Brothers, Inc., annual report on Form 10-K for the fiscal year ended 31 October 2025, accession 0000794170-25-000112, filed 19 December 2025, for the five-year maturity schedule and for the absence of an interest expense line.
- ASC 835-20, Capitalization of Interest, which is the policy the first of the two notes describes.
What this leaves out
- The reading order here is one that works for a question about figures. A question about governance, litigation or accounting policy starts in a different place and this order would be wrong for it.
- Leaving the risk factors unread is a choice about a section written to be exhaustive rather than selective. It is not a claim that nothing in it matters.
- Nothing here is a view on Toll Brothers or on any security.