Management Discussion and Analysis Report popularly known as MD&A is the communication straight from the management to the shareholders of the company giving them insights into the present business conditions of the company and its future potential. It gives a bird’s eye view about the entire business ecosystem of the company. MDA is the window to understand the functioning of the company and the industry in which it operates. It is one of the most important and relevant aspects of the Annual Report from a Retail investors perspective and usually the one of the starting points in conducting fundamental analysis of a company.
Management discussion and analysis requirements
The Management Discussion and Analysis Report is mandatory as per Companies Act 2013 and in terms of listing agreement with the exchanges. It usually forms a part of the directors’ report in an Annual Report or is an addition thereto.
Contents of Management Discussion and Analysis report
This Management Discussion & Analysis should include discussion on the following matters as long as it’s within the limits set by the competitive position of the company:
- Structure of the Industry and developments affecting the industry – either competitive or regulatory.
- A SWOT analysis focussing of the Business Opportunities and Threats.
- Gist of the financial performance of the year gone by and commentary on key elements of the financials.
- Performance Break down either Segment–wise or product-wise.
- Outlook for the future
- Key Risks to business and concerns and steps taken to mitigate impact of risks.
- Description of the company’s Internal control systems & their adequacy.
- Specific discussion on operational performance parameters.
- Company specific developments with respect to Entry/Exit of Key Managerial Personnel and overall employment status of the company.
- Specific disclosures in case of Related party transactions that may need to be highlighted to ensure there is no conflict of interest and absolute transparency in the conduct of business.
How should an Investor read the Management Discussion and Analysis report and draw takeaways from the same?
Careful reading of Management Discussion and Analysis will inform the reader about the extent of transparency in disclosures, idea about extent of corporate governances and a complete insight about the business and its operating environment. Reading the Annual reports and MDAs of the competitors in the same industry will also in a relative terms, give an idea about the standards of disclosure followed company and its operating environment. MDA acts as a starting point for doing fundamental analysis.
A poor MD&A is a red flag and can work as a great indicator for identifying if a stock is a Penny Stock and has poor fundamentals.
Based on some research reports, it is estimated that hardly 5% of the people read Annual Reports leave alone MDA. We believe that just by reading MDAs and Annual reports more and more people will become investors and that too for long term as they will approach stock buying as business buying rather than just stock buying. When investors start investing for long term then only they will realise the power of compounding their wealth in the long term run.
Samco helps clients in a profound way by analysing every stock based on above footsteps and has assigned Samco Stock Ratings to every stocks to make the life easy for the investors.
What is SAMCO Stock Ratings?
SAMCO Stock Ratings can act as a first point of fundamental analysis and help individuals on the process of how to choose stocks to invest in.
It is designed to help investors who have no information on how to do fundamental analysis in Stock Market.
SAMCO Stock ratings, is a meticulously done study on almost every listed stock of NSE by studying annual reports and consolidated financial statements and scanning them objectively through the principles laid down by legendary investors like Warren Buffett, Peter Lynch, Charlie Munger, etc, resulting into every stock being rated from AAA – AA – A – BBB – BB – B – CCC – CC – PENNY Stocks. Just like credit rating agencies rate the credit worthiness of the company in case of debt instruments, we have rated the business worthiness or the quality of the company from an equity shareholders perspective. It’s like if every student gets a grade in the school for performance, why shouldn’t a stock be rated similarly if objective set of rating parameters are available. The rating can act as a guide or the second opinion on the stock, which the users can rely upon before deciding whether to buy or not to buy.
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