Management analysis and organizational frameworks

Management Discussion and Analysis Memorandum

Beginning Investors

Chief Investment Officer

Management Discussion and Analysis

Contained within every SEC 10-K filing, the annual required disclosure of a company's financial condition; is a section titled Management Discussion and Analysis (MD&A). This section "provides an overview of the previous year of operations and how the company fared in that time period" (Investopedia. N.D.). For the purpose of this analysis the dissemination of the 10-K of the railroad transportation company CSX will prove useful in examining the importance of the MD&A section.

The critical importance of the MD&A section is management's examination of the company's financial condition and the state of its operations. CSX provides cargo transportation services via interconnected rail networks to customers across multiple industries with a "broad portfolio of products, ranging from coal and new energy sources, like biodiesel and ethanol, to automobiles, chemicals, and consumer products" (CSX 10-K Filing. 2010. Management develops a narrative of the firm's operations to include strategic infrastructure spending and forward looking capital investments which will allow the company to "generate adequate returns and drive shareholder value" (CSX 10-K Filing. 2010). Such proposed investment will exceed three billion dollars in 2011.

From a discussion of the company's activities and operational environment; the next piece of the MD&A includes a listing of key financial metrics and data: revenue, expenses, and operating income. Management for CSX cites increases in revenue of 1.6 billion over the fiscal year, along with increases in expenses of 794 million, all culminating in "operating income increasing $801 million or 35% to $3.1 billion and operating ratio improving to 71.1%, both being all-time annual records" (CSX 10-K Filing. 2010).

Perhaps most critical in the MD&A section is the dissection and explication of the financial condition of the company. Management speaks to investors on all aspects of financial performance covered by the disclosure in the 10-K of financial statements including: balance sheet, income statement, statement of cash flows, and statement of stockholder's equity. This detailed explanation of financial performance allows management to discuss company operations in terms of financial condition and health both in the present and in future reporting periods. For CSX the management cites improving economic conditions, cost controls, and infrastructure development as crucial to increases in operating income.