Definition
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.
Explanation
Also referred to as MD&A, Management's Discussion and Analysis 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). The MD&A provides an overview of the performance of a business in the prior year as well as insights into its future prospects. Typically included as part of the company's annual report or Form 10-K, the document attempts to provide investors with a balanced view of the corporation as seen through the eyes of its management team.
While the information appearing in the MD&A is unaudited, it does help investors to understand how the company's management team reacts to both challenges and opportunities. Generally, this discussion will touch on several topics, including:
Growth and Strategy: industry trends, financial flexibility, core competencies, ability to execute, differentiators and capabilities.
Challenges and Opportunities: key events, demands on the business, commitments to others and uncertainties on the horizon, as well as their implications and significance to the business.
Historical Performance and Outlook: key performance indicators, observations with respect to financial statements, profits, earnings, cash flow, and whether or not past performance may be indicative of future results.
Financing and Investments: cash holdings, liquidity, capital requirements, and critical estimates.
The MD&A should present the reader with the most significant items up-front, and focus its analysis on information that is material to the finances of the company.
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