Final answer:
The MD&A section of an annual report covers liquidity, capital resources, and results of operations. It is a narrative by management explaining the financial conditions and operations, which becomes important as a firm grows and attracts outside investors.
Step-by-step explanation:
The MD&A, or Management's Discussion and Analysis, section of an annual report typically covers three financial aspects of a firm's business, which are liquidity, capital resources, and results of operations. This makes option B the correct choice. The MD&A is a section where management provides a narrative explanation of the financial statements, offering insights into the company's financial condition, its operations over the previous fiscal period, and its future prospects. It offers a platform for the company's executives to discuss their strategic vision and detail factors that may affect future performance. As a firm grows and becomes more established, widely available information about the company's products, revenues, costs, and profits becomes increasingly important for outside investors, thus reducing the need for personal knowledge of the individual managers.