`segment_information` is the breakdown of a company's performance data into its different operating units. Think of a giant company like a department store; segment information doesn't just give you the total sales, it tells you how much came from clothing, how much from electronics, and how much from the food court. This detail is a goldmine for investors, typically found in the `notes to the financial statements` section of a company's `annual report`. Instead of viewing a business as a single, mysterious black box, segment data allows you to peek inside and see the individual engines that power the whole machine. Accounting rules, such as `IFRS` and `GAAP`, require public companies to disclose key figures like `revenue`, `operating profit`, and `assets` for each major business line or geographic region. For a `value investing` practitioner, this isn't just extra reading; it's the key to truly understanding the quality, risks, and potential of the business you're analyzing.
Analyzing a company without looking at its segments is like judging a band after hearing all their songs played at once—a chaotic mess. Many large companies, especially a `conglomerate`, are collections of very different businesses. A brilliant, high-growth tech division might be shackled to a stagnant, low-margin manufacturing arm. The consolidated financial statements would show a picture of mediocrity, masking both the star performer and the laggard. By dissecting segment information, you can:
This valuable data isn't hidden in a secret vault; it's publicly available, but you need to know where to look. Your primary destination is the company's annual report (for US companies, this is the Form `10-K`). Navigate to the “Notes to the Financial Statements,” which follows the main three statements (Income Statement, Balance Sheet, and Cash Flow Statement). Look for a note explicitly titled “Segment Information,” “Business Segments,” or “Operating Segments.” Inside, you will typically find a table that breaks down key metrics by business unit or geographic area. While the level of detail can vary, you should expect to see at a minimum:
Pay close attention to how the company defines its segments. This itself tells you how management views its own business.
Once you've found the data, the real fun begins. Use this checklist to guide your analysis and turn raw numbers into powerful insights.
Calculate the operating margin (Operating Profit / Revenue) for each segment. This quickly reveals the true profit drivers. A segment with 10% of revenue but 50% of profit is a crown jewel.
Compare segment revenues over the last few years. Is the company's overall growth powered by one star performer, or is it broad-based? A company dependent on a single segment for all its growth is riskier than one with multiple growth engines.
This is a big one. Compare the assets tied up in each segment to the profit it generates. You can do a rough calculation of `Return on Invested Capital (ROIC)` for each segment. If a segment with huge assets is generating tiny profits, it's a “capital sinkhole.”
By analyzing each segment, you can perform a `sum-of-the-parts valuation`. This involves valuing each business unit as if it were a standalone company and then adding them up. If the result is significantly higher than the company's current market capitalization, you may have found a classic value opportunity. This often happens when the market applies a “conglomerate discount” due to perceived complexity or lack of focus.