Corporate Liquidity Disclosures: An Update

Published date01 November 2013
Date01 November 2013
AuthorCathy J. Cole
© 2013 Wiley Periodicals, Inc.
Published online in Wiley Online Library (
DOI 10.1002/jcaf.21908
Cathy J. Cole
Although the liquidity of U.S. companies has
generally been improving since 2008, investors
and creditors are always keenly interested in
this area. And companies must discuss liquidity
in the Management’s Discussion and Analysis
(MD&A) section of reports they file with the U.S.
Securities and Exchange Commission (SEC). To
help companies prepare these liquidity discus-
sions, this article looks at what some Dow Jones
Industrial companies are doing with MD&A. Since
these are some of the country’s most widely
followed companies, examining their common
practices may assist others in preparing MD&A.
© 2013 Wiley Periodicals, Inc.
Corporate Liquidity Disclosures: An Update
While U.S. compa-
nies’ liquidity positions
have been generally
improving since the
2008 financial crisis,
corporate liquidity is
a topic of perennial
interest to investors and
creditors. Consequently,
the U.S. Securities and
Exchange Commis-
sion’s (SEC) basic Man-
agement’s Discussion
and Analysis (MD&A)
rules have long required
a discussion of liquid-
ity in reports filed
with the SEC. While a previous
article by this author, “Corpo-
rate Liquidity Disclosures: A
Review” (Cole, 2012), examined
the SEC’s basic MD&A require-
ments and interpretive guidance,
this article focuses on some
common practices in the recent
liquidity and capital resource
discussions for 26 nonfinancial
companies that are included in
the Dow Jones Industrial Aver-
age (the sample companies).
While these companies are well
established and thus unlikely
to have liquidity deficiencies to
address, given that they are some
of the country’s most widely
followed companies, examin-
ing their common practices
may assist others in preparing
The MD&A rules require
that MD&A analyze liquidity
and capital resources includ-
ing off-balance-sheet arrange-
ments and provide a table of
contractual obligations (U.S.
SEC, n.d.). Item 303 of Regu-
lation S-K defines liquidity as
the “ability of an enterprise to
generate adequate amounts of
cash to meet the enterprise’s
needs for cash.”1 All the sample
companies com-
bined the presenta-
tion of liquidity and
capital resources as
is permitted by the
SEC rules due to
the complementary
nature of these top-
ics. The presenta-
tion formats of the
liquidity and capital
resources sections
of MD&A for the
sample companies
tended to fall into
two somewhat dis-
tinct styles. Under
the cash flow state-
ment style, the
liquidity and capital resources
discussion is structured pre-
dominantly around the state-
ment of cash flows classifica-
tions. Approximately 70% of
the sample companies have
discussions focusing on operat-
ing, investing, and financing
activities. These companies usu-
ally also include a discussion
of available financing sources
such as credit facilities and
other borrowing arrangements,
debt covenants, credit ratings,
and related issues often directly
after the discussion of financing
cash flow activities, but in some
cases in a separate section. Sev-
eral of these companies also

To continue reading

Request your trial

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT