"Your goal is to be able to explain how the business operates to a friend who has limited business knowledge." 

Locate the 10-K and read the business description. It is typically listed as item 1 and varies in length depending on the type of business. After reading, you should have a basic understanding of how the company operates.

Write a summary of the business in your own words. How do they manufacture products and/or services? How do they distribute them?

Then visit the website to see what the actual products/services look like. Continue to distill your thoughts into a useful summary document that allows you to explain the business to others.

If you are struggling to understand the business, Shearn poses a helpful question for you to ask.

"What would the customer's world look like without the product or service?"

You can also use an analogy to simplify the business and make it easier to understand. In the book, Shearn compares Akamai to an air traffic control tower.

Bottom line: It's important to process the information and write it in your own words to ensure you understand the business accurately. 

• *Notes taken from "The Investment Checklist" by Michael Shearn -Question 3 of "Understanding the Business - The Basics."