Group Assignment #1: Risk Factor Analysis – Facebook

Only need to do question 4. PDF is 10K, need to read risk factors part. docx is other questions related to Facebook.

Group Assignment #1: Risk Factor Analysis – Wells Fargo, Metropolitan Life, and Facebook


The primary source of risk information for external stakeholders of a publicly traded U.S. company is the “Risk Factors” section (1-A) of its annual financial report (“Form 10-K”) filed with the Securities and Exchange Commission (SEC). This disclosure on a company’s risks is required under Item 503(c) of Regulation S-K, which was crafted in 1964. The regulation provides five specific examples of such factors:

  • the company’s lack of operating history,
  • lack of profitable operations in recent periods,
  • financial position,
  • business or proposed business, and
  • lack of a market in the company’s securities

Other than these examples, the disclosure is principles based and not prescriptive. Over the years, “Risk Factors” disclosures have evolved to parallel the increasing complexity of the modern business environment. The SEC has voiced concerns about the true value of the disclosures to investors and whether the “spirit” of Item 503(c) is being complied with by filing companies. After all, assessing risk is a critical input into any assessment by investors or regulators. As you read the risk factor sections you should be forming an opinion if they are materially helpful or just ‘check-the-box’ exercises.


Each group will be risk consultants hired by Carlton & Crim Asset Management (CCAM) company, which holds significant investments in all three companies. The goal is to develop recommendations to elevate the content and discussion of risk disclosures for the companies. Please leverage the questions below to formulate your recommendations.

The end user of your report and video will be the CCAM Chief Risk Officer (CRO), who has asked you for greater risk insight into CCAM’s investments as well as best practice risk disclosures that can be shared with the companies with which CCAM invests.

Please obtain the most recent 10-K’s for year end 2017 or if more current (latest available as of 02/08/19) for each company from their respective websites or SEC’s EDGAR website. Please read the descriptions of the firms as found in the statements and read the risk factor and related sections.

Questions to be answered in the report:

  1. Which risk factors in the 10-K SEC filings have a high degree of specificity and which are ‘generic’ answers?
  2. Analyze and explain commonalities and key differences between the three companies’ risk factor disclosures.
  3. Highlight shared risk mitigation efforts and trends. Explain similarities and differences.
  4. For FaceBook only, provide a ½ page risk analysis of the adequacy of the risk related disclosures.
  5. Summarize in one page key recommendations from your analysis of the four questions above. This may include additional risk factors to be added/elevated within the annual report, modifying existing risk factors to be more relevant/concise/useful to CCAM as an institutional investor and/or potential risks descriptions and disclosures that can be reduced or removed from the annual report.