Management Discussion and Analysis

Written By
Paul Tracy
Updated July 12, 2021

What is Management Discussion and Analysis?

In the financial world, a management discussion and analysis (MD&A) is a written explanation of a public company's performance for the reporting period. The explanation appears in the company's disclosures to the Securities and Exchange Commission (usually the 10-K and 10-Q).
 

How Does Management Discussion and Analysis Work?

Let's say Company XYZ is a public company that 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 Exchange Commission dictates 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 income.
  • 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 volume 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 duration of the obligation.

Why Does Management Discussion and Analysis Matter?

Anyone who has ever looked at an annual report, a 10-K or a 10-Q 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 note, however, that the MD&A is not audited; only the actual financial statements are audited in a financial report.

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