Managment Discussion & Analysis

Management discussion and analysis (MDA) is an unaudited section of an annual report in which the management discusses the company's financial performance for the past period, its current financial position and provides insight into the company's future prospects, outlining future goals and approaches to new projects in light of its strategy. Additionally, it discloses its basis for critical accounting estimates.

Example

ExxonMobil annual report for the year ended 31 December 2011 contains a management discussion and analysis. It tells the stakeholders about ExxonMobil's:

1. Business environment and risk management
2. Segment-wise performance for financial year 2010 and 2011;
3. Liquidity and capital sources
4. Capital and exploration expenditures;
5. Taxes;
6. Environmental matters
7. Market risk, inflation and other uncertainties and
8. Critical accounting estimates

The MD&A is a very important section of an annual report, especially for those analyzing the fundamentals, which include management and management style. Although this section contains useful information, investors should keep in mind that the section is unaudited.

Audited financial statements and accompanying notes are standardized representation of the company's performance and its financial position which does not allow the management to have their say. MDA fills this gap by giving them an opportunity to justify the performance and communicate what they plan to do in future. The flexibility which MDA allows in communicating plans about future makes it a very important section for the company's stakeholders. However, it ought to be used with caution because the unaudited forward-looking statements of the management might be too optimistic.