Omparing the Management Discussion and Analysis of the Annual Report - Essay Example

Preparing the Management Discussion and Analysis (MD&A) Section of the Annual Reports IntroductionFor comparing the Management Discussion and Analysis section of the annual report of the two companies. Apple and Microsoft as a company have been selected for discussion. Management discussion and analysis is prepared with the intention to make the reader of the annual report understand the financial conditions and operations of the organization. It provides an overview of the operation of the previous financial year and to what extent the company was able to achieve its target. Management generally highlights the upcoming future targets and goals and different approaches for new projects. The management discussion and analysis is considered to be the very important section of the annual report for those people who are generally concerned with analyzing the fundamentals of the company. The management discussion and analysis includes the management and management style. This section is also very useful for the potential investors of the company. It generally includes the rules and regulations which are adopted by the Security exchange commission. The management is responsible for preparation of the management discussion and analysis. The management has to interpret each criterion that accurately derive the historical figures from the books of record and entity and determine and evaluate the relevancy of information that is to be included in the annual report under the heading of management discussion and analysis and also estimates and make assumptions that might affect the reported information which is provided. Discussion Apple Inc is the company that designs and manufactures various personal computers, mobile communication, and digital music players. It also deals with the sale of variety of accessories, third party digital content, variety of related software, and its applications. The company sells iphone, ipad and Mac. The company sells its product to its small and medium size businesses, government customers, education etc.. The company was founded by Steve Jobs in the year 1976. It has it’s headquarter in Cupertino California (Grady 72). Microsoft is engaged in licensing, developing, and also supporting different varieties of software products. It is also engaged in designing and also selling the devices which integrate with the cloud based services. It attracts global audience through online advertising. It was founded by Bill Gates in the year 1975. It has it’s headquarter in Redmond Washington (Mosher 53). The net sales of apple have risen by 7% or 11.9 million dollar in the financial year 2014 as compared to that of in 2013. This increase in the net sales was due to the increase in sale of its i phone, Itune, Mac, software and services whereas the corporate as well as other revenues of Microsoft decreased in the financial year 2014 as compared to that in 2013. Corporate and also other related gross margin decreased to 866 million dollars mainly due to the decrease in revenue. Microsoft’s expenditure for research and development has increased by 9% mainly due to the increase in the investment for introducing new products and availing new services. On the contrary the Research and development expenditure of Apple has increased by 35%. The expenditure is incurred for its growth and development and to maintain a competitive position in the market place. The selling, administrative and marketing expenditure of apple have increased by 11% in the financial year 2014 from the financial year 2013. The expenditure included higher spending on advertising, professional services and marketing. In contrary the selling and marketing expenses of Microsoft have increased by 4% in 2014 from the selling and marketing expenses in 2013. The selling and marketing expenses included advertisement, promotion, seminar, trade shows and also other related programs. Apple in its annual report under the heading management discussion and analysis is highlighting the product performance of and the unit sales and the revenue generated from each of its individual product. On the contrary Microsoft is not revealing its revenue on each product basis (Gillam 103). The financial condition of Microsoft has clearly explained the factors affecting the financial condition. Cash, cash equivalent and investment have been clearly mentioned and also its valuation and also the short term debt and long term debt have been classified. On the contrary no such arrangements have been made by Apple. Microsoft in its management discussion and analysis have specified the business trend where it have mentioned about the models and have explained it very well highlighting on innovation and also the forces that drive towards the research and development have been mentioned. Microsoft has provided the industry exposure and the demand for its product in very attractive way. On the contrary Apple has not specifically focused on its industry trend, it have only provided an essence in its overview and highlights. Microsoft has analyzed the key opportunities and investment which can attract the investors. On the contrary Apple has not mentioned such things in its management discussion and analysis section of its annual report. Apple has very well and clearly segregated its operating performance on the basis of different areas or regions and areas. It have explained the net sales of different regions by incorporating table and also the percentage increase and decrease have been clearly mentioned which will help the reader of the annual report to understand and assume it well. On the contrary Microsoft has not segregated its operating performance on the basis of different region or areas. It has only mentioned the operating expenses and other income expenses. The operating performance which provides the reader or creates a impression of the company is not mentioned here (Apple Inc 32). The liquidity and capital resources together with the items included in the cash flow statement have been indicated with figures in the management discussion and analysis of Apple, whereas only the cash, cash equivalent and cash flow statement have been explained with the help of definition without proper estimated figure and facts in the management analysis and discussion of Microsoft. The provision of income tax have been highlighted in the management discussion and analysis in the annual report of Microsoft in a very indecent way without a proper format and discussing properly the impacts of the income tax and the change in the effective tax rate. Whereas the provision for income tax have been very precisely and in a proper format attached to it have been presented. And it has provided a brief summary of the provision of income tax highlighting only on the key issues (Microsoft Corp 20). Microsoft have mentioned the unearned revenue separately and also mentioned the unearned revenue that is expected on a monthly basis. This will help the reader of the annual report or the investor in estimating the revenue of the company that is due and is expected in the near future and also the details when the company is going to receive its unearned revenue and also specifically in which month. But Apple have not segregated its unearned revenue or mentioned it separately and Apple has not disclosed the amount of unearned revenue that it has and when it is going to recover the revenue. It has merged its unearned revenue in its revenue recognition heading without disclosing or revealing any figures. Both the company Apple and Microsoft have included off balance sheet arrangements and contractual obligations in the management discussion and analysis of their respective annual report. As compared to both the companies it is observed that not only investor but any reader of the annual report will be able to understand the contractual obligations of Apple. As the company have explained its obligations or have differentiated its obligations on the basis of the payment due for number of years. This provides the reader of the annual report to develop an idea about the obligations that the company has and also the period from which the payment is due. Microsoft have also explained its contractual obligations and it has also differentiated its obligations on the basis of the year but it have not explained anything regarding the contractual obligations only the figures have been projected. The sales data have been explained by revealing the facts and figures of the three consecutive financial year and explaining the percentage of changes in the figures per year and also differentiating the net sales on the basis of the product and segment. Therefore the sales data of its various product and the area where it is sold and the percentage increase in the sale of each product and the increase in sale of various segment is explained clearly and precisely which is understandable for everyone. On the contrary Microsoft have not disclosed its sales data or revealed its figure so clearly. It has not even explained the percentage increase or decrease in sale of the product on the basis of the different segment. Microsoft has just provided us an idea of its sale together with the marketing. Thus without providing the reader or giving the reader an insight about the sales data of the company. Both the companies Apple as well as Microsoft have provided almost similar type of explanation on critical accounting policies and estimates. Both have explained and provided the detail in the same way. Both the company follows the Generally Accepted Accounting principles for adopting or implementing its accounting decisions. Apple has provided the information of capital return program but the same is not mentioned in the annual report of Microsoft. Conclusion Both the companies are US based company and both the company was established in the two consecutive years. Microsoft was established on 1975 and Apple was established on 1976. Apple was established after the very next year when Microsoft was established. Both the company establishes the annual report at the end of each financial year including the management discussion and analysis to provide an insight about the operation, growth and development of the company. The reader or the outsider can read the annual; report and have an idea about the future growth of the company. The management discussion and accounting provides a brief summary of the annual report. The increase and decrease in revenue, sales etc are revealed and also the new initiative or the target set by the company for the next financial year is disclosed. The management discussion analysis attracts the investors and inspires them to invest. As the investor become aware of the performance of the company by observing the management discussion analysis. The ranking of the company on the basis of its revenue have been done on the basis of its annual report. Works cited Apple Inc. United States Securities and Exchange Commission, 27 September. 2014. Web.18 November. 2014. . Gillam, Scott. Steve Jobs: Apple Icon, Minnesota: ABDO, 2012.Print. Grady Jason D. O. Apple Inc, Unites States: ABC-CLIO, 2009. Print. Microsoft Corp. Annual Report. 2014. Web. 18 November. 2014. < http://www.microsoft.com/investor/reports/ar14/index.html#discussion>. Mosher, Sue. Microsoft Outlook Programming: Jumpstart for Administrators, Power Users, and Developers, Burlington: Digital Press, 2002. Print. Read More