Question

What is the importance of the management discussion and analysis section of an annual report? What are three items from Verizon’s management and discussion analysis of the annual report that could be useful to potential investors. How those examples influence a potential investor’s decision to invest in Verizon?

Answer 1

Ans: )

A.)

Management discussion and analysis (MD&A) statement is a part of a public company's annual reports issued for its shareholders, in which the management of the company addresses the shareholders providing them a summary of the financial and economic performance of the company during the past twelve months, this section is an highly important portion of the financial statements as it includes the following:

1.) Analyses of the company’s financial performance by the top management officials, utilizing both qualitative and quantitative measures of performance.

2.) Management commentary on the financial statements of the company, along with the details of all legal and regulatory compliances, systems and controls.

3.) Management plans for future growth of the company, highlighting the future goals and objectives along with the details of the new projects being considered by the company.

B.)

The Management Discussion and Analysis (MD&A) is a reliable source of essential information for analysts and investors who are interested in reviewing the company’s fundamentals and the performance of management in governing the company.

The items from Verizon’s Management Discussion and Analysis (MD&A) statement that are highly useful for present and potential shareholders to examine the company’s viability are:

1. Summary of the company’s financial performance in the current year (2017) accompanied by the comparison of the performance with the financial performance of the previous 2 years (2015 & 2016).
2. An Overview of the overall progress, growth and development of each business vertical of the organization including the market share, historical performance, latest actions and measures implemented in the current year along with the future plans for development of the organization.
3. Comparative operating results of the company including detailed bifurcation of each component of the operating earnings and operating costs of the company.
   

C.)

The Items forming part of the Management Discussion and Analysis (MD&A) portion of the company’s annual report have a huge influence on the investment decisions of the potential shareholders of the company, the following points highlight few such factors:

1. It allows the investors to take informed investment decisions keeping in mind the financial policies of the company.
2. It provides the investors, essential information about the future growth prospects of the company.
3. It allows the investors to compare the financial profitability pattern if the company.
4. It gives a means to analyze each component of the operating results of the company to identify the positive and negative growth factors and their impact.
5. It accommodates the investor to examine the market share, industry prospects, economic indicators and competitive forces for the company, thus enabling them to better understand the viability of their investments.