EDUCBA

EDUCBA

MENUMENU
  • Free Tutorials
  • Free Courses
  • Certification Courses
  • 250+ Courses All in One Bundle
  • Login

Management Discussion and Analysis

By Ratnesh SharmaRatnesh Sharma

Home » Finance » Blog » Corporate Finance Basics » Management Discussion and Analysis

Management Discussion and Analysis

Introduction to Management Discussion and Analysis

Management Discussion and Analysis (also known as MD&A) is a report to be included in the annual / periodical financial reports of public companies as mandated by the Securities and Exchange Commission (SEC) and through which the management of the company give comments on the financial statements, regulatory compliance, effectiveness of the internal controls and systems as well as actions to be taken for the future goals of the company.

Explanation

  • This is a section contained in the annual report (SEC filing 10K) of the public companies wherein the management presents its points / analysis on the various matters such as regulations, performance, internal control system, etc. on the basis of qualitative & quantitative measures.
  • MD&A is required to be given in annual reports as well as quarterly filing reports since, it gives an edge in the understanding of the financial statements by the end users (or stakeholders). It is made to be compulsorily by US SEC and to be given by the management of the public companies.
  • MD&A summarises the position at past, position in the current environment & future projections as well.

Example of Management Discussion and Analysis

We take example of “Domino’s Pizza, Inc” which filed its Form 10K for the fiscal year 2019. The item number 7 of the form is “Management Discussion and Analysis” explained in around 13 pages. Let’s summarise few points out of those 13 pages:

Start Your Free Investment Banking Course

Download Corporate Valuation, Investment Banking, Accounting, CFA Calculator & others

(source:https://www.sec.gov/ix?doc=/Archives/edgar/data/1286681/000119312520042675/d796357d10k.htm)

  • Operations are discussed in comparison to fiscal year 2018. Also, Part II of item 7 includes comparison of fiscal year 2018 with fiscal year 2017.
  • Short description of the business is provided wherein the management specifies its location around the globe, its products, business model, product delivery mechanism, operation mechanism of franchisees,
  • Some of the highlights of fiscal year 2019 compared to 2018 are increase in global retail sales by 8%, increase in revenue by 5%, increase in the income from operations by 10%, increase in net income by 11%, increase in number of stores by 1106 and increase in diluted earnings per share (DEPS) by 14%.
  • Further the item 7 specifies its critical accounting policies such as revenue recognition, long-lived assets, insurance & legal matters, share based payments, etc.
  • The report also specifies increase in store-wise revenue, store-wise operating margins and supply chain operating margin.
  • It also highlights on the cashflow statement in a summarised manner.

What is Included in Management Discussion and Analysis?

  • MD&A is the most desirable section of the whole annual report since it summarises all points from all corners of the entity. It also specifies the factors of growth.
  • Annual report is around 100-pages while the section of MD&A summaries the operational facts, margins, business model, history, etc. in mostly 13-15 pages.
  • It also highlights the future goals of the organisation & also specifies the current steps taken to achieve the future goals. Thus, financial analysts review the MD&A section in a very detailed manner to understand the fundamental aspects of the entity.
  • The financial statement is audited by external party but the MD&A section is unaudited part of the annual report. However, the MD&A has facts which will match with figures in the entire annual report. So, sufficient reliance can be placed.
  • Besides what we explained in the example above, MD&A section also provides information about the regulatory compliance by the entity, existence of internal control system & operating effectiveness of the same, and further plans of the organisation to expand surpassing the existing problems.

Requirement of Management Discussion and Analysis

  • The requirement of the section for Management Discussion & Analysis is required by the US Securities and Exchange Commission (SEC) & also by the Financial Accounting Standards Board (FASB). At present, it has to be included in the annual reports of the public companies only.
  • The purpose is to let the management provide a balanced view of the future prospects of the entity. This helps the stakeholders understand the fundamentals of the company & the approach of the management in dealing with any issues.
  • Though the MD&A section is unaudited, the FASB requires the management to states the positive as well as negative aspects/ facts in respect of the entity in an independent manner.
  • This further helps in the transparent conduct of business activities.

Key Aspects of Management Discussion and Analysis

Management Discussion & Analysis sections deals in many aspects of the entity. Yet there are a few key aspects which has its own importance. Few are described below:

1. Highlights about the Current Fiscal Year

  • Highlights give summarised important facts as compared to last year.
  • This area shows the growth aspect, earnings aspect, business model aspect of the entity through financial figures.
  • It gives a small picture of enormous transaction of the business.

2. Critical Accounting Policies & Estimates

  • This aspect covers the important accounting policies & estimates which has major impact on the results of the entity.
  • This area explains how the estimates & judgements made by the management affect the reported amounts of revenue, expenses, assets, liabilities and various disclosures. It also explains the scientific method used for making the estimates.
  • Few of the critical accounting policies includes revenue recognition, share-based payments, income taxes, long-lived assets and many more.
  • This explains the readers about how the picture of financials can change with the change in few methods of estimates & assumptions.
  • This helps the readers get a complete understanding about the most critical accounting policies having major impact on the performance evaluation of the company.

3. Liquidity & Capital Resources

  • This area highlights the liquidity issues & position of the company.
  • It specifies the commitments, possible uncertainties of the business claims, etc. which will have impact on the capital resources. The management should identity the areas of capital expenditure.
  • This should give hints about the future funding plans of the management including any changes which are required in the current capital structure of the entity.

4. Results of Operations

  • This should give highlights of the results of the operations. This area should also highlight any unusual economic activities that bear impact on the continuing operations of the entity.
  • MD&A also explains the events that have credible impact on the net earnings, revenues and gross profit of the entity.
  • The management should also explain the attributes or facts for any unusual movement in the figures contained in the financials. For example, in case of rise in cost of goods sold (COGS), the management should provide facts such rise in material cost, increase in labour turnover, excess cost incurred in the production chain, etc.

The management discussion and analysis section presents the whole picture in a transparent manner. This helps the stakeholders to independently analyse the things without any favourable bias. The end purpose of increasing the understanding of the readers of annual report, is also served. Management discussion and analysis helps providing useful information & uplifts the compliance mechanism of the federal government.

Recommended Articles

This is a guide to Management Discussion and Analysis. Here we also discuss what is included in management discussion and analysis along with an example. You may also have a look at the following articles to learn more –

  1. Finance vs Lease
  2. Corporate Finance
  3. Career in Corporate Finance
  4. Accounting Transaction

All in One Financial Analyst Bundle (250+ Courses, 40+ Projects)

Popular Course in this category
Sale
Business Valuation Training (16 Courses)16 Online Courses | 80+ Hours | Verifiable Certificate of Completion | Lifetime Access
4.5 (9,624 ratings)
Course Price

View Course

Related Courses
Equity Research Training (17 Courses)Project Finance Training (8 Courses with Case Studies)

250+ Online Courses

40+ Projects

1000+ Hours

Verifiable Certificates

Lifetime Access

Learn More

0 Shares
Share
Tweet
Share
Primary Sidebar
Finance Blog
  • Corporate Finance Basics
    • BPO vs KPO
    • C Corporation
    • Brick and Mortar
    • Business Entity Concept
    • Bounced Check
    • Capital Maintenance
    • Bridge Financing
    • Business Exit Strategy
    • Callable Bonds
    • Affiliated Companies
    • Certified Check
    • Chattel Mortgage
    • Contingent Beneficiary
    • Debt Collector
    • Closed Corporation
    • Cumulative Voting
    • Consumer Loan
    • Commercial Loans
    • Collateralization
    • Commercial Credit
    • Collection Agency
    • Classification of Financial Markets
    • Class Action Lawsuits
    • Prudence Concept in Accounting
    • Calmar Ratio
    • Asset Classes
    • Audit Evidence
    • Contingent Liability
    • Employee Stock
    • Financial Liabilities
    • Incurred Cost
    • Partial Income Statement
    • Deferred Tax Asset
    • Tax Fraud
    • Non-Operating Income
    • Variable Costing
    • Mixed Cost
    • Prime Cost
    • Regressive Tax Examples
    • Unqualified Opinion of Auditor
    • Bonds Payable
    • Class A Shares
    • Contingent Liability Example
    • Contingent Shares
    • Contributed Capital
    • Brownfield Investment
    • Internal Audit
    • Indirect Taxes
    • Fund Management
    • Fixed Cost
    • Debt Equity Swap
    • Cash Flow Hedge
    • Risk Shifting
    • High Yield Investments
    • General Obligation Bond
    • Forward Market
    • Box Spread
    • Fixed Income Trader
    • Trade Discount
    • Quick Assets
    • Notes Payable
    • Revenue Bonds
    • Euribor
    • Settlement Date
    • Short Covering
    • Short Selling
    • Dividend Examples
    • Time to Market
    • Junior Accountant
    • Commodity Derivatives
    • Flash Report
    • Idle Time
    • Leasehold Improvement
    • Product Portfolio
    • Risk Parity
    • Branch Accounting
    • Credit Enhancement
    • Basis Trading
    • At the Money
    • Accounts Receivable
    • Long Term Investments
    • Negative Goodwill
    • Recourse Factoring
    • Residual Value
    • Short Term Loan
    • Tax Exempt
    • Audit Report Format
    • Cash Investment
    • 457 Plan
    • Audit Procedure
    • Audit Materiality
    • Audit Committee
    • Asset Allocation
    • Non-Cash Expenses
    • Dividend Policy Types
    • Credit Terms
    • Dividend Payable
    • Profit Center
    • Absorption Costing
    • Final Dividend
    • Hybrid Securities
    • Other Current Assets
    • Simple Random Sample
    • Dependency Ratio
    • Effective Duration
    • Loan to Value Ratio
    • Inventory Turnover Ratio
    • Advantages of Ratio Analysis
    • Loss Ratio
    • Delaware Corporation
    • Articles of Incorporation
    • Negative Covenants
    • Statutory Liquidity Ratio
    • Leverage Ratio for Banks
    • Accrued Liabilities
    • Activity Ratio
    • Debt Service Coverage Ratio
    • Return on Investment Ratio
    • Turnover Ratios
    • Cash Conversion Cycle
    • Lumion vs V-Ray
    • Capital Intensive
    • Voided Check
    • Negotiable Instruments
    • Portfolio Optimization
    • 401k Plan
    • Non-Marketable Securities
    • Stock Certificate
    • Treasury Stock
    • Appropriate Retained Earnings
    • Stockholder
    • Share Vesting
    • Shares Issued
    • Preferred Shares
    • Share Buyback
    • Shareholder Types
    • Tax Loss Harvesting
    • Statutory Audit
    • Audit Risk
    • Fund of Funds
    • Accredited Investor
    • Cost Centre
    • Lessee
    • Golden Handcuffs
    • Ordinary Shares
    • Restricted Stock Units
    • Goodwill Valuation
    • Share Classes
    • Lessor
    • Preferred Dividends
    • LIFO Liquidation
    • Dilutive Securities
    • Restructuring Cost
    • Non-Cumulative Preference Shares
    • Pass Through Entity
    • Management Discussion and Analysis
    • Premium on Stock
    • Leveraged Loans
    • Dividend
    • Dividend Policy
    • Financial Reporting Objectives
    • Financial Reporting
    • Internal Controls
    • Capital Investment
    • Debt to Equity Ratio
    • Dividend Growth Rate
    • Market Capitalization
    • Deal Origination
    • Importance of Working Capital
    • SWOT Analysis
    • White Knight
    • Root Cause Analysis
    • Realized Gain
    • Return on Operating Assets
    • Offshore Investments
    • Transfer Price
    • Times Interest Earned Ratio
    • Debt Coverage Ratio
    • Dividend Discount Model
    • Combined Ratio
    • Merger Arbitrage
    • Gordon Growth Model
    • Advantages of Joint Venture
    • Interest Coverage Ratio
    • Reserve Requirements
    • Asset Turnover Ratio
    • Price to Rent Ratio
    • Ratio Analysis Types
    • Debt Ratio
    • Business Risk
    • Financial Leverage
    • Dividend Payout Ratio
    • Mistakes in DCF
    • Risk/Reward Ratio
    • Full Form of FIPB
    • Financial Risk
    • CAPE Ratio
    • Overcapitalization
    • Systematic Risk
    • Hedge Ratio
    • Full Form of NHB
    • Sensitivity Analysis
    • Current Ratio
    • Corporation Examples
    • Asset to Sales Ratio
    • Balance Sheet Ratios
    • List of Financial Ratios
    • Coverage Ratio
    • Forward PE Ratio
    • Interpretation of Debt to Equity Ratio
    • Capitalization Ratio
    • Importance of Ratio Analysis
    • Quick Ratio Interpretation
    • Corporate Finance Basics
    • PEG Ratio
    • Corporate Finance Interview Questions
    • Price to Earnings Ratio
    • Structured Note
    • Limitations of Ratio Analysis
    • NPV vs IRR
    • IRR vs ROI
    • Imputed Interest
    • Full Form of HR
    • Shareholders Agreement
    • Earnings Per Share
    • Corporate Finance Jobs
    • About Corporate Finance
    • Corporate Finance Theory & Practices
    • Career in Corporate Finance
    • Simple Interest Rate vs Compound Interest Rate
    • Stocks vs Shares
    • Bonds vs Debenture
    • Bull Market vs Bear Market
    • Mortgagee vs Mortgagor
    • Horizontal Integration vs Vertical Integration
    • Money Market vs Capital Market
    • Leveraged vs Unleveraged
    • Dividends vs Capital Gains
    • Present Value vs Net Present Value
    • Qualified vs Ordinary Dividends
    • ROE vs ROA
    • Bond vs Loan
    • Stock Dividend vs Stock Split
    • Audit vs Assurance
    • Coupon Rate vs Interest Rate
    • Growth Stock vs Value Stock
  • Accounting fundamentals (658+)
  • Asset Management Tutorial (198+)
  • Banking (44+)
  • Credit Research Fundamentals (6+)
  • Economics (44+)
  • Finance Formula (382+)
  • Financial Modeling in Excel (13+)
  • Investment Banking Basics (120+)
  • Investment Banking Careers (26+)
  • Trading for dummies (67+)
  • valuation basics (27+)
Finance Blog Courses
  • Online Business Valuation Training
  • Equity Research Certification
  • Project Finance Course
Footer
About Us
  • Blog
  • Who is EDUCBA?
  • Sign Up
  • Live Classes
  • Corporate Training
  • Certificate from Top Institutions
  • Contact Us
  • Verifiable Certificate
  • Reviews
  • Terms and Conditions
  • Privacy Policy
  •  
Apps
  • iPhone & iPad
  • Android
Resources
  • Free Courses
  • Investment Banking Jobs Offer
  • Finance Formula
  • All Tutorials
Certification Courses
  • All Courses
  • Financial Analyst All in One Bundle
  • Investment Banking Training
  • Financial Modeling Course
  • Equity Research Course
  • Private Equity Training Course
  • Business Valuation Course
  • Mergers and Acquisitions Course

© 2022 - EDUCBA. ALL RIGHTS RESERVED. THE CERTIFICATION NAMES ARE THE TRADEMARKS OF THEIR RESPECTIVE OWNERS.

EDUCBA
Free Investment Banking Course

Corporate Valuation, Investment Banking, Accounting, CFA Calculator & others

*Please provide your correct email id. Login details for this Free course will be emailed to you

By signing up, you agree to our Terms of Use and Privacy Policy.

EDUCBA
Free Investment Banking Course

Corporate Valuation, Investment Banking, Accounting, CFA Calculator & others

*Please provide your correct email id. Login details for this Free course will be emailed to you

By signing up, you agree to our Terms of Use and Privacy Policy.

EDUCBA Login

Forgot Password?

By signing up, you agree to our Terms of Use and Privacy Policy.

Let’s Get Started

By signing up, you agree to our Terms of Use and Privacy Policy.

EDUCBA

*Please provide your correct email id. Login details for this Free course will be emailed to you

By signing up, you agree to our Terms of Use and Privacy Policy.

This website or its third-party tools use cookies, which are necessary to its functioning and required to achieve the purposes illustrated in the cookie policy. By closing this banner, scrolling this page, clicking a link or continuing to browse otherwise, you agree to our Privacy Policy

Loading . . .
Quiz
Question:

Answer:

Quiz Result
Total QuestionsCorrect AnswersWrong AnswersPercentage

Explore 1000+ varieties of Mock tests View more

Special Offer - Online Business Valuation Training Learn More