Management Discussion and Analysis Exclusions

A

Companies are encouraged, but not required, to provide forward-looking information i.e. they need not extrapolate past trends into the future to draw conclusions about the firm's prospects.

The correct answer is D. IV only.

The "Management Discussion and Analysis" (MD&A) section of a stockholder's report is a critical part of financial reporting. It provides insights into the company's financial performance, key risks, and future prospects. The MD&A is required by the Securities and Exchange Commission (SEC) for publicly traded companies in the United States.

Let's analyze each option to understand why D. IV only is the correct answer:

I. Analysis of cash flows and liquidity: The MD&A section typically includes an analysis of cash flows and liquidity. It discusses the sources and uses of cash, cash flow from operating, investing, and financing activities, and the company's ability to meet its short-term obligations. Therefore, this option should not be excluded from the MD&A section.

II. Discussion of unusual events like discontinued operations: The MD&A section should include a discussion of unusual events or significant transactions that affect the company's financial statements. Discontinued operations, if applicable, are considered significant events and should be discussed. Hence, this option should not be excluded from the MD&A section.

III. Future outlook based on current and past events: This option suggests that the MD&A section need not contain a future outlook based on current and past events. However, this is incorrect. The MD&A section commonly includes management's discussion of the company's future prospects, including potential opportunities, risks, and uncertainties. Therefore, this option should not be excluded from the MD&A section.

IV. Firm's ability to maintain its dividend policy while sustaining growth: This option suggests that the MD&A section need not include the firm's ability to maintain its dividend policy while sustaining growth. However, this is incorrect. The MD&A section often addresses the company's dividend policy and its impact on the company's growth strategy. It is important for shareholders to understand the company's approach to dividends and how it aligns with its growth objectives. Therefore, this option should be excluded from the MD&A section.

To summarize, option D. IV only is the correct answer because the MD&A section should include analysis of cash flows and liquidity (I), discussion of unusual events like discontinued operations (II), and future outlook based on current and past events (III). The MD&A section need not specifically contain the firm's ability to maintain its dividend policy while sustaining growth (IV).