What Is Management Discussion and Analysis - MD&A?

Management discussion and analysis (MD&A) is the portion of a public company's annual report or quarterly filing, in which management addresses the company’s performance. In this section, the company’s management and executives, also known as the C-suite, analyze the company’s performance with qualitative and quantitative measures.


Management Discussion And Analysis (MD&A)

Understanding the Management Discussion and Analysis

In the management discussion and analysis (MD&A) section, management will also provide commentary on financial statements, systems and controls, compliance with laws and regulations, and actions it has planned or has taken to address any challenges the company is facing. Management also discusses the upcoming year by outlining future goals and approaches to new projects. The MD&A is an important source of information for analysts and investors who want to review the company’s financial fundamentals and management performance.

The management discussion and analysis is just one of many sections required by the Securities and Exchange Commission (SEC) and the Financial Accounting Standards Board (FASB) to be included in a public company’s annual report to shareholders. A company that issues stock or bonds to the public at large must register its offerings with the SEC, which oversees public companies’ compliance with U.S. securities laws and ensures investors are given adequate information about companies they are investing in. The SEC mandates 14 items to be included in the 10-K report. The MD&A section is Item #7.

The Financial Accounting Standards Board (FASB) is a nonprofit, private regulatory organization, which the SEC has designated as the body responsible for promulgating accounting standards for public companies in the United States. FASB outlines its requirements for the management discussion and analysis section of filings.

Key Takeaways

  • Management discussion and analysis (MD&A) is a section within a company’s annual report or quarterly filing where executives analyze the company’s performance.
  • The section can also include a discussion of compliance, risks, and future plans, such as goals and new projects.
  • The MD&A section is not audited and represents the thoughts and opinions of management.

Requirements for the Management Discussion and Analysis

Securities law dictates that companies must hire an independent auditor to verify a company’s financial statements, such as its balance sheet, income statements, and its statement of cash flows. Auditors perform test work to determine if the financial statements are materially correct, but these certified public accountants (CPAs) do not audit the information in the management discussion and analysis section. The MD&A represents the thoughts and opinions of management and provides a forecast of future operations, and therefore these statements can’t typically be authenticated.

The MD&A section is not audited and includes the opinions of management.

That said, the MD&A section still must meet certain standards. According to FASB, “MD&A should provide a balanced presentation that includes both positive and negative information about the topics discussed.” Even if management is giving its opinion on the state of its business, competition, and risks, these statements must be based in fact, and there must be an attempt to paint a balanced picture of the company’s future prospects.

Example of Management Discussion and Analysis - MD&A

Consider Apple, which includes a 13-page management discussion and analysis section in its fiscal 2018 annual report, also known as a 10-K filing. In this section, management highlights product sales, segment performance, margins, and accounting pronouncements, among other things. Apple’s management also discusses specifics risks to its business, such as interest rate and foreign currency risk.