Question

discuss and understanding how MD&A, credit reports, and news articles can be used to gain insight into a company’s current and future financial performance? Ch 14

Answer 1

-> Credit reports : Credit reports are the most vital and essential documents used by investors, lenders and bankers to assess the ability of a company to meet its current and long-term debt obligations on time. It tells us the cash flow status of the company, whether it is healthy or whether the company is lagging behind its payments. A healthy cash flow would be when company has enough to meet its debt obligations and also has some surplus to grab any unexpected investment opportunity that might come their way. A company which has too much of blocked capital is a risky investment and it is the credit report which helps the investors and lenders know about such companies.

-> News articles : This is again one of the most important sources of information for the investors, lenders and other stakeholders for their decision-making. News articles tells us about both the current and the future potential performance of the company. If the company is entering into a merger or it is launching a new product line, stakeholders will get such information only from press releases and news articles which help them in assessing the future potential growth of the company and the safety of their investments. News articles also tells us about the current situation of the company by letting us know how well each product segment of the company is doing or by letting us know in case any fraud has been identified in which case it is safer to divest the investment in such a company.

-> Management discussion and analysis (MD&A) is the portion of a public company's annual report in which management tells us about the company's performance with the help of qualitative and quantitative measures. It is a very important section wherein management provides comments about the financial statements, compliance with various laws and regulations, any future plans regarding sales/other important components of the company. The MD&A is an important source of information for analysts and investors who want to review the company’s financial fundamentals and management performance.