Segment Reporting

Intermediate

Segment reporting is the disclosure of financial information about the different parts of a company's business, such as product lines or geographic regions, as they are reviewed by its management.

A large company may run very different businesses that perform differently. Consolidated totals can hide important details, such as one division growing fast while another loses money. Segment reporting breaks results down to show these differences.

Under IFRS and US GAAP, companies report segments based on how management organises and reviews the business internally. For each reportable segment, they typically disclose revenue, a measure of profit, and often assets and other key figures.

For example, a technology company might report three segments: hardware, software and services. Its disclosures might show that hardware brings in most of the revenue but services earn the highest profit margin.

Companies also usually disclose revenue by geographic area and identify major customers when a single customer accounts for a large share of revenue.

Segment reporting helps investors understand where a company earns its money, which parts are growing or struggling and how exposed it is to particular markets or regions. It is especially useful when valuing businesses using a sum-of-the-parts approach.

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