Definition
The term Liquidity and Capital Resources refers to a section of the Management's Discussion and Analysis of Financial Condition that provides insights into the company's need for cash as well as its sources of cash. A discussion of a company's liquidity and capital resources can be found in its Form 10-K filing.
Explanation
Management's Discussion and Analysis (MD&A) of Financial Condition and Results of Operations is a required disclosure made by companies that fall under the jurisdiction of the Securities and Exchange Commission (SEC). Liquidity and Capital Resources is a subsection appearing in the MD&A that outlines the company's sources of, and need for, cash. The discussion appearing in this section should allow the investor-analyst to understand if the company has the ability to generate enough cash to meet its future needs.
The purpose of this section is to enhance the discussion and analysis of information appearing elsewhere in the company's Form 10-K in a way that:
Enhances and explains information reported in the company's cash flow statements.
Discloses information not readily apparent when companies use the indirect method to prepare their cash flow statements.
Augments disclosures regarding debt, financial guarantees, as well as related covenants.
Companies are required to disclose in their MD&A the following material information:
A historical account of their sources of cash and capital expenditures.
An assessment of the accuracy of cash flow projections appearing in the report.
Anticipated changes in the company's mix of capital resources.
Balance sheet items indicative of the company's financial strength.
In addition to a discussion of the company's sources and uses of cash, the Liquidity and Capital Resources section of the MD&A should also include:
Financing: use of external debt, off-balance sheet financing arrangements, derivatives linked to its common stock, use of stock as liquidity as well as the impact of likely changes to its credit rating.
Covenants: actions the company takes to avoid breach of guarantees and related covenants, an assessment of the impact a breach will have on the company's financial condition, in addition to sources of funds to pay these obligations.
Related Terms
The term Management's Discussion and Analysis refers to a section of the annual report that provides investors with insights into how the business performed in the past, its current financial condition as well as projections of future performance. Management's Discussion and Analysis (MD&A) is normally included with a company's annual report or Form 10-K, allowing the investor-analyst to understand how the leaders of the business believe the company has performed over the last year and what the future may bring.
Moneyzine EditorJanuary 24th, 2024
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- The term regulatory liability refers to specific revenues or gains that a government agency permits a regulated utility to defer to its balance sheet. Accounting for regulatory liabilities allows public utilities to defer the recognition of certain gains; bypassing the income statement in the near term by moving these gains to the balance sheet.Moneyzine EditorSeptember 21st, 2023
The term financing receivables is used to describe an arrangement whereby a business uses its receivables to gain immediate access to cash. Financing receivables usually fall into two broad categories, which involve either the sale of receivables or a secured loan.Moneyzine EditorJanuary 18th, 2024
The term asset retirement obligation is used to describe an accounting process that recognizes the legal responsibility to dispose of assets at a future point in time. Asset retirement obligations are typically associated with long-lived assets and can involve an entire asset or a portion of it. The obligation can come about as a result of a law, statute, ordinance, or written contract.Moneyzine EditorJanuary 5th, 2024
