Management Assessment – How to Evaluate the Quality of a Company’s Management

One of the main management assessment purposes is to evaluate if the preset goals outlined in the Management’s Discussion and Analysis (MD&A) have been achieved. To follow up on what management has promised, you need to compare the accomplished results from the latest MD&A with the preset goals from the prior MD&A. For a more extensive management assessment you can include older MD&A’s in this comparison too.

If you would like to know what I do when I can’t find the reasons in the MD&A for management’s failure to accomplish the preset goals, I refer you to the note at the bottom of this page.

When and Where to Find Your Stock’s Management Discussion and Analysis (MD&A)?

For those who are not familiar with when the MD&A is released: it is filed at the same time as the company’s financial statements. Therefore you can normally find the MD&A on the website of the company you are interested in. For American listed stocks the MD&A is also filed on the website of the SEC; for Canadian listed stocks you will find it on the website of SEDAR. Your stock’s MD&A is listed between the other documents which you will see after you have executed a company search on one of those websites.

Company Announcements Evaluation

In addition to a thorough evaluation of the company’s MD&A’s, I also study the information presented in the two most relevant company announcements: the company’s latest investor presentation and their press release archive.

The first thing I always do when I am visiting a company’s website, which I am analysing to potentially add to my stock portfolio, is to read their latest investor presentation. The goal of such a presentation is that the company’s management wants to convince you to invest your money in their company (in stead of investing it in another stock). Therefore, after studying this investor presentation, you should ask yourself the question: has management convinced me to buy the company’s stock at current prices, or not?

Secondly, I will read all the headlines of the company’s press releases from the past two to three years. For those releases, which I believe are relevant to my stock investment analysis, I will read the content completely. Typical relevant press releases are:

  • All press releases related to the personnel change in the company’s key management positions;
  • All press releases related to the change in the company’s assets;
  • All press releases related to the change in the company’s financial results (i.e. this includes the announcements related to change in its total shares outstanding and its credit facilities).

When you are reading the information presented in the company’s announcements, you want this information to be very clear, i.e. after reading a company announcement you shouldn’t have any questions left about the subject.

To conduct your management assessment further, I have created the following articles:

Subpage  Description 
Key Management Positions  What Competencies to Look for in Your Stock’s Management. In this
article you read which management functions I have qualified as key management positions. I have
also included their job descriptions so you know what skills to look for.
 
Management Compensation  Where to Find Your Stock’s Management Compensation Data. As I
mainly invest in American and Canadian listed stocks, I have only included the management
compensation data sources of these countries in this article
Management Evaluation  11 Questions to Ask Yourself When Assessing Your Stock’s Management.
My management evaluation consists at least of answering these questions to help me form an
opinion about the quality of a company’s management.
 

Note: If I can’t find the reasons for management’s failing to accomplish the preset goals, I always directly contact the company’s management by email for an explanation. You can learn a lot from the way your email is treated. A timely, friendly and of course correct explanation is what sets a good management team apart. You want an honest management who is consistent with their promises and actions! I personally do not invest in stocks whose management doesn’t respond to my email at all, or responds in a way I think is not satisfactory.


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