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9210 Liquidity and Capital Resources [S-K 303(a)(1) and (2)]
us SEC - Financial Reporting Manual
9210.1 These represent two separate requirements of S-K 303(a). The majority of registrants combine their discussion of these two items due to the degree of overlap which exists among the requirements. A key objective of the liquidity and capital resources discussion is to provide a clear picture of the company's ability to generate cash and to meet existing known or reasonably likely future cash requirements.
9210.2 Liquidity is the ability of the registrant to generate adequate amounts of cash to meet its needs for cash. Any known trends, or any known demands, commitments, events or uncertainties that will result in or are likely to result in the registrant's liquidity increasing or decreasing in a material way should be discussed. To the extent a material deficiency is identified, the registrant should disclose the steps taken to remedy the deficiency. The discussion should also evaluate the amounts and certainties of cash flows, as well as whether there has been material variability in historical cash flows.
9210.3 The requirements of the disclosures related to capital resources include a discussion of material commitments for capital expenditures, the general purpose of any commitments and how these commitments will be funded, and material trends in the registrant's capital resources, including expected changes in the mix (equity, debt and any off-balance sheet financing arrangements) and their relative cost.
9210.4 The liquidity and capital resources discussion should address:
a. Material cash requirements;
b. Sources and uses of cash, including cash provided by/used in operations, as well as cash provided by/used in investing and financing activities; and
c. Material trends and uncertainties related to a company's flexibility in determining when and how to use the available cash flows to satisfy obligations and make other capital expenditures.
9210.5 It may be necessary for the liquidity and capital resources discussion to address debt instruments, guarantees and related covenants. Disclosure is likely to be necessary if:
a. The registrant is, or is reasonably likely to be, in breach of debt covenants or
b. Debt covenants impact the registrant's ability to obtain additional debt or equity financing.
9210.6 Improving Liquidity and Capital Resources
a. One of the most common deficiencies is when registrants simply repeat items reported in the statement of cash flows. Registrants should focus on the primary drivers of and other material factors necessary to an understanding of the registrant's cash flows and the indicative value of historical cash flows.
b. Registrants should describe cash flows from operating, investing and financing activities associated with discontinued operations separately from continuing operations if that information is not apparent from the cash flow statement. Additionally, registrants should describe how the company's liquidity is likely to be affected by the absence of cash flows (or negative cash flows) associated with discontinued operations.
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