Show pageOld revisionsBacklinksBack to top This page is read only. You can view the source, but not change it. Ask your administrator if you think this is wrong. ======Business Segments====== Business Segments are the distinct, reportable parts of a large company's operations. Think of a massive corporation like a department store; instead of just one big shop, it has separate sections for electronics, clothing, home goods, and groceries. In the corporate world, these "sections" are its business segments, which might be based on different products, services, or geographical regions. Publicly traded companies are legally required by regulators like the [[SEC]] (U.S. Securities and Exchange Commission) to provide a financial snapshot for each significant segment in their [[annual report|annual reports]] (such as the [[10-K]] filing in the US). This isn't just bureaucratic paperwork; it’s a treasure map for savvy investors. It breaks down the company's total [[revenue]], [[operating profit]], and [[assets]], allowing you to see exactly which parts of the business are firing on all cylinders and which are sputtering out. Without this breakdown, you'd only see the company's consolidated, blended performance, which can be seriously misleading. ===== Why Business Segments Matter to Investors ===== Analyzing a company's segments is like being a detective. You move past the headline numbers and uncover the real story behind a business. This granular view is fundamental to the [[value investing]] philosophy, as it helps you understand what you are //truly// buying. ==== Uncovering Hidden Gems and Red Flags ==== Often, a fantastic, high-growth business is hidden inside a larger, more boring [[conglomerate]]. The market might value the whole company based on its overall slow growth, completely overlooking the "jewel" within. By looking at the segment data, you can spot this high-performing division and realize the company's stock might be dramatically undervalued. The reverse is also true. A company might look healthy on the surface, but a deep dive into its segments could reveal that one failing division is consuming huge amounts of cash and dragging down the successful parts. This is a major red flag, signaling that the company's sunny overall picture could cloud over quickly unless management takes action, such as selling or shutting down the struggling segment. ==== The Power of Sum-of-the-Parts ==== One of the most powerful tools in an investor's kit is the [[sum-of-the-parts valuation]] (SOTP). This is where you play "fantasy CEO." You analyze each business segment as if it were a standalone company and assign it an individual value. Then, you add up the values of all the parts. The magic happens when you compare your final SOTP value to the company's current [[market capitalization]]. If your calculated value is significantly higher than the price the market is currently putting on the company, you may have found a bargain. The market is pricing the company as a messy whole, while you see the true, higher value of its individual, high-quality businesses. This discrepancy is a classic opportunity for value investors. ===== Finding and Analyzing Segment Data ===== You don't need a secret decoder ring to find this information; companies have to publish it. Here’s how you can put on your analyst hat. ==== Where to Look ==== The primary source for segment data is the company's annual report. In the U.S., this is the Form 10-K, which is filed with the SEC and available on the company's investor relations website. Skim through the document until you find the "Notes to Consolidated Financial Statements." In that section, look for a note specifically titled something like **"Segment Information," "Business Segments,"** or **"Reportable Segments."** That's your goldmine. ==== What to Analyze ==== Once you've found the data table, focus on these key questions for each segment over the last few years: * **Growth:** How fast is the segment's revenue growing? Is it accelerating or slowing down? Compare its growth rate to that of its direct competitors to see if it's gaining or losing market share. * **Profitability:** What is the segment's [[operating margin]] (Operating Profit / Revenue)? A high and rising margin is a sign of a strong, healthy business. Notice which segments contribute the most to the company's total profit. * **Efficiency:** How much in assets does the segment require to operate? A segment that generates a lot of profit with very few assets is a cash-generating machine. * **Investment:** How much is the company investing back into the segment (check for [[capital expenditure]] disclosures)? Heavy investment in a high-return segment is fantastic. Pouring money into a low-return segment is a recipe for destroying value. ===== A Value Investor's Takeaway ===== Never judge a company by its cover. Digging into business segments is non-negotiable due diligence. It separates you from the casual speculator and moves you into the realm of a true business analyst, just as [[Benjamin Graham]] advocated. This analysis helps you understand a company's competitive advantages, identify potential [[catalyst|catalysts]] for unlocking value (like a [[spin-off]] of a prized division), and, most importantly, avoid buying into a business where a hidden problem is about to sink the ship. By breaking a company down into its core components, you can more accurately determine its intrinsic value—and find opportunities the rest of the market has missed.