Loading the player...

What is the 'Management Discussion and Analysis - MD&A'

Management discussion and analysis (MD&A) is the section of a company's annual report in which management provides an overview of the previous year’s operations and how the company performed financially. Management also discusses the upcoming year by outlining future goals and approaches to new projects. The MD&A is an important document for analysts and investors who want to review the company’s financial fundamentals and management performance.

BREAKING DOWN 'Management Discussion and Analysis - MD&A'

A company that sells securities to the public must register its stock offerings with the Securities and Exchange Commission (SEC), which provides oversight and ensures investors receive adequate disclosure for investments. The SEC requires firms to file periodic disclosures to investors, including Form 10-K annually and Form 10-Q each quarter. The MD&A section is included with the annual report or the Form 10-K filing.

The Differences Between MD&A and Audited Financials

The SEC requires an independent CPA firm perform an annual audit of a company’s financial statements, and an audit is an opinion as to whether the financials are free of material misstatement. Auditors perform test work to determine if the financial statements are materially correct, but CPAs do not audit the information in the MD&A section. The MD&A represents the thoughts and opinions of management and provides a forecast of future operations.

Examples of Financial Indicators

Management uses many financial indicators to explain the firm’s recent performance results, including a comparison of the company’s net income and sales for the last three to five years and if the numbers are trending up or down. The MD&A separates net income and sales by company divisions and also discusses cash flow, because generating cash inflows is required to fund the needs of the business.

Factoring in Capitalization

The MD&A discusses capitalization, or the firm’s capital structure of debt and equity. Firms can raise money to run the business by issuing stock to shareholders or by issuing bonds to creditors, and the MD&A explains the current capital structure and any additional stock or bond offerings management may be planning.

How Management Discusses Projections

Analysts and investors consider how senior management makes smart business decisions to improve company results, so discussions about management’s future plans are an important part of the MD&A section. Management explains how the firm’s products and services are positioned in the market, and how the business can grow sales by achieving a larger market share or by introducing new products to drive sales.

RELATED TERMS
  1. Earnings Call

    Earnings call is a conference call between a public company, ...
  2. SEC Form N-CSR

    SEC Form N-CSR is a form that a registered management investment ...
  3. Annual Report

    An annual report is a publication that public corporations must ...
  4. Audit

    An audit is an unbiased examination and evaluation of the financial ...
  5. Auditing Evidence

    Auditing evidence is information collected to review a company's ...
  6. Audit Cycle

    An audit cycle is the accounting process that auditors employ ...
Related Articles
  1. Investing

    The Flow of Company Information

    Learn how to gather all the pieces before you start to put together your puzzle.
  2. Investing

    SEC Filings: Forms You Need To Know

    The forms companies are required to file provide a clear view of their histories and progress.
  3. Investing

    Speed-Read SEC Filings for Hot Stock Picks

    SEC filings can be a headache. Read out how to speed-read through your stock research.
  4. Investing

    Why Investors Should Look at the Proxy Statement

    Many investors tend to look at the 10-K or 10-Q first, but smart investors do not overlook the proxy statement as a valuable source of company information.
  5. Taxes

    Your Chance of a Tax Audit Is the Lowest in Years

    The risk of a tax audit, for you or your company, is the lowest in years, but that doesn’t mean you should skirt the law or stop keeping records.
  6. Personal Finance

    A Day In The Life Of An Auditor

    If you like the idea of examining and attesting to a company's financial performance for a living, a career in auditing might be right for you.
  7. Investing

    The basics of a financial analysis report

    An overview of the major sections to consider when writing a financial analysis report on a company.
  8. Taxes

    How Does An IRS Audit Work?

    It doesn't automatically mean an IRS agent will be ringing your doorbell. Here are the different types of IRS audits and how to handle them.
RELATED FAQS
  1. Determining a Firm's Percentage of Credit Sales

    Find out where to look for information about determining a company's percentage of credit sales. Read Answer >>
  2. When does Q4 start and finish?

    Learn about different financial years used by various companies. Explore when the fourth quarter begins on October 1st and ... Read Answer >>
  3. Can the IRS audit you after a refund?

    Learn how the U.S. Internal Revenue Service (IRS) can conduct a tax audit even after a taxpayer was issued a tax refund in ... Read Answer >>
Hot Definitions
  1. Socially Responsible Investment - SRI

    Socially responsible investing looks for investments that are considered socially conscious because of the nature of the ...
  2. Business Cycle

    The business cycle describes the rise and fall in production output of goods and services in an economy. Business cycles ...
  3. Futures Contract

    An agreement to buy or sell the underlying commodity or asset at a specific price at a future date.
  4. Yield Curve

    A yield curve is a line that plots the interest rates, at a set point in time, of bonds having equal credit quality, but ...
  5. Portfolio

    A portfolio is a grouping of financial assets such as stocks, bonds and cash equivalents, also their mutual, exchange-traded ...
  6. Gross Profit

    Gross profit is the profit a company makes after deducting the costs of making and selling its products, or the costs of ...
Trading Center