If you want to know what the executives of any public company were (and are) thinking, read the Management Discussion and Analysis section of their quarterly (10-Q) or annual (10-K) reports.
Last week, we discussed financial reporting and forecasting as performed by public companies and how it could benefit your company.
Today, I want to talk about another important document that public companies must provide: Management discussion and analysis, or “MD&A.”
I highly recommend that you seek out public companies in your industry and read their annual and quarterly reports, especially the MD&A sections.
If you sell to public companies, these documents should be required reading for your entire executive team. These reports have extremely valuable information about where these companies—your customers and competitors—see the industry and the global economy heading. And, this information is free!
Management Discussion and Analysis
MD&A is a very important narrative that makes management’s decisions and planning transparent. It compares results against prior plans and also states future plans.
A useful link is at the CPA Canada website here.
According to the CPA Canada article, the five principles are:
- Through the eyes of management: this reflects management’s perspective while attempting to minimize sensitive competitive information.
- Integration with financial statements: The MD&A presents contextual information about events that generated the results contained in the financial statements.
- Completeness and materiality: the information needs to be useful to the user’s (including investors, analysts, regulators) needs and decision making.
- Forward looking orientation: although the MD&A explains what happened in the last quarter, it needs to focus on what management sees happening in the next period. This includes describing management’s strategy, decisions, opportunities, and risks that are likely material.
- Strategic perspective: this section needs to explain how the company plans to create value for shareholders in the future by discussing the strategic direction and specific objectives.
- Usefulness: the information needs to be understandable, relevant, comparable, verifiable, and timely.
In conclusion, formalizing your Management Discussion and Analysis can be very powerful for clarifying your strategy and identifying risks that impact the future of your business.
To discuss how I can help you set up or improve your management discussion and analysis so that you can increase your revenues, profits, and valuation, please give me a call.
Thanks for reading!