sec-risk-factors

# SEC Risk Factors Analysis

Extract and summarize risk factors from SEC filings (10-K and 10-Q) for public companies using the Octagon MCP server.

## Prerequisites

Ensure Octagon MCP is configured in your AI agent (Cursor, Claude Desktop, Windsurf, etc.). See [references/mcp-setup.md](references/mcp-setup.md) for installation instructions.

## Workflow

### 1. Identify Analysis Parameters

Determine the following before querying:
- **Ticker**: Stock symbol (e.g., AAPL, MSFT, GOOGL)
- **Filing Type** (optional): 10-K (annual) or 10-Q (quarterly updates)
- **Focus Areas** (optional): Specific risk categories of interest

### 2. Execute Query via Octagon MCP

Use the `octagon-agent` tool with a natural language prompt:

```
Extract and summarize the risk factors section from <TICKER>'s latest annual report.
```

**MCP Call Format:**

```json
{
  "server": "octagon-mcp",
  "toolName": "octagon-agent",
  "arguments": {
    "prompt": "Extract and summarize the risk factors section from AAPL's latest annual report."
  }
}
```

### 3. Expected Output

The agent returns categorized risk factors including:

| Risk Category | Description | Source Pages |
|---------------|-------------|--------------|
| Macroeconomic & Industry Risks | Economic downturns, inflation, currency | 10-K, p.8 |
| Legal & Regulatory Compliance | Legal proceedings, regulatory challenges | 10-K, p.15-16 |
| Financial Risks | Pricing pressures, competition, FX volatility | 10-K, p.18-31 |
| Business Risks | Product transitions, competitiveness | 10-K, p.11 |
| Operational Risks | Manufacturing, logistics, outsourcing | 10-K, p.11 |
| Data Security & Privacy | Cybersecurity, data protection | 10-K, p.18 |
| Supply Chain Risks | Geopolitical tensions, natural disasters | 10-K, p.9 |

**Data Sources**: octagon-sec-agent

### 4. Interpret Results

See [references/interpreting-results.md](references/interpreting-results.md) for guidance on:
- Understanding risk factor categories
- Assessing risk materiality
- Comparing risks across filings
- Identifying new or emerging risks

## Example Queries

**Standard Risk Factor Extraction:**
```
Extract and summarize the risk factors section from AAPL's latest annual report.
```

**Quarterly Risk Updates:**
```
Extract any new or updated risk factors from TSLA's latest 10-Q filing.
```

**Specific Risk Category:**
```
Extract cybersecurity and data privacy risk factors from META's latest 10-K.
```

**Comparative Analysis:**
```
Compare the risk factors between GOOGL's 2024 and 2023 10-K filings.
```

**Industry Comparison:**
```
Extract and compare supply chain risk factors from AAPL and MSFT's latest 10-K filings.
```

**Regulatory Focus:**
```
Extract all regulatory and legal compliance risk factors from JPM's latest annual report.
```

## Risk Factor Categories

### Macroeconomic Risks

| Risk Type | Examples |
|-----------|----------|
| Economic Cycles | Recessions, GDP decline, consumer spending |
| Inflation | Input costs, pricing power, margin pressure |
| Interest Rates | Borrowing costs, valuation impacts |
| Currency | FX volatility, translation effects |
| Geopolitical | Trade wars, sanctions, political instability |

### Operational Risks

| Risk Type | Examples |
|-----------|----------|
| Supply Chain | Supplier concentration, logistics disruptions |
| Manufacturing | Production issues, quality control |
| Technology | System failures, IT infrastructure |
| Human Capital | Key personnel, labor relations |
| Business Continuity | Natural disasters, pandemics |

### Financial Risks

| Risk Type | Examples |
|-----------|----------|
| Liquidity | Cash flow, access to capital |
| Credit | Counterparty risk, receivables |
| Market | Stock price volatility, valuation |
| Tax | Rate changes, audit exposure |
| Pension | Funding obligations, assumptions |

### Regulatory & Legal Risks

| Risk Type | Examples |
|-----------|----------|
| Compliance | Industry regulations, licensing |
| Litigation | Lawsuits, class actions |
| Antitrust | Competition law, market dominance |
| Data Privacy | GDPR, CCPA, data breaches |
| Environmental | ESG regulations, climate policies |

### Strategic Risks

| Risk Type | Examples |
|-----------|----------|
| Competition | Market share, pricing pressure |
| Disruption | Technology shifts, new entrants |
| M&A | Integration risks, deal failure |
| Innovation | R&D success, product pipeline |
| Reputation | Brand damage, public perception |

## Analyzing Risk Changes

### New Risks (High Priority)

Risks added since prior filing:
- Indicates emerging concerns
- Often reflects recent events
- May signal strategic shifts

### Removed Risks (Monitor)

Risks no longer disclosed:
- Issue may be resolved
- Or consolidated into other risks
- Verify resolution in MD&A

### Modified Language (Important)

Risks with changed wording:
- Expanded = increased concern
- Reduced = diminished concern
- More specific = crystallizing risk

## Analysis Tips

1. **Order matters**: Risks are typically ordered by perceived materiality - first risks are often most significant.

2. **Length signals importance**: More detailed risk descriptions often indicate greater management concern.

3. **Specificity is key**: Specific examples suggest real concerns vs. boilerplate language.

4. **Cross-reference MD&A**: Management discussion often provides context for risk factors.

5. **Track changes YoY**: New, removed, or modified risks reveal evolving concerns.

6. **Compare to peers**: Unique risks vs. industry-standard disclosures indicate company-specific issues.

## Use Cases

- **Investment due diligence**: Comprehensive risk assessment before investing
- **Portfolio risk monitoring**: Track risk evolution for holdings
- **Competitive analysis**: Compare risk profiles across competitors
- **Sector research**: Identify common vs. unique risks in an industry
- **Compliance review**: Ensure adequate risk disclosure