Management Discussion and Analysis
What it is:
How it works (Example):
Let's say Company XYZ is athat must file 10-Qs and 10-Ks with the SEC. Both forms require an MD&A, which means the executives at Company XYZ must compose several pages of written insight, explanation, expectations and detail that provide more information about the company's financial condition, decisions and plans.
The Securities and Exchangedictates to some degree what goes into the MD&A:
- A discussion of the company's financial condition, changes in financial condition and results of operations
- A discussion of the company's liquidity and capital resources, including trends, demands, commitments, events or uncertainties that could change liquidity, as well as any actions the management has taken to remedy deficiencies in the company's liquidity or capital resources
- A discussion and description of the company's sources of capital, limits on that capital, costs of the capital and available facilities
- A discussion of segment information or other subdivisions of the company, in a segment-by-segment manner
- Descriptions of unusual or infrequent operating events that materially affected or are expected to materially affect .
- A discussion of the reasons for material increases or decreases in revenues, including "a narrative discussion of the extent to which such increases are attributable to increases in prices or to increases in the or amount of goods or services being sold or to the introduction of new products or services"
- A discussion of the impact of inflation on the business
- A discussion of the company's off-balance-sheet arrangements
- A table describing the company's contractual obligations, including the size of the obligation, the nature of the obligation, and the of the obligation.
Why it Matters:
Anyone who has ever looked at an annual report, a or a has undoubtedly noticed that there are pages and pages of text -- the filings aren't just financial statements. Part of this text is the MD&A, and its intent is to explain portions of what you're seeing in the financial statements themselves. That is, the MD&A is management's attempt to explain why things are the way they are. It is important to , however, that the MD&A is not audited; only the actual financial statements are audited in a financial report.