All listed companies must report their segment wise revenue and results for the reporting period. It will enable the stakeholders to have insight into the entity’s operations from the perspective of that company’s management.
For instance if a company has multiple business activities, then the users of the financial statements should get information about the performance of each of such business activities in order to make a better informed decision.
In this article, you will learn what is a segment and how companies report segment wise revenue and results.
What is a segment?
In order to report revenue and results of a company the segments are identified based on how the financial information is regularly reviewed by the chief operating decision maker of the company to make decisions.
In general we have two types of segments: business divisions or units and geographical area.
Depending on the organizational structure, business presence, and type of industry, the segments are defined.
FMCG companies may prefer to have segments like home care, beauty and personal care, Foods & Refreshment and others.
Whereas for a software company segment will be different. They prefer to have segments like Energy, Utilities, Resources and Services, financial services, manufacturing, financial services and retail.
Example: How segment wise revenue and results are reported
Given below are examples of two FMCG companies and one software company showing how segment wise revenue and results are reported.
The software or IT company reports its revenue and net profit along with other details for the company every quarter and once in a year for the whole financial year.
To provide greater details they report revenue and results of the company for different geography and divisions such as Financial Services and Insurance, Manufacturing, Retail, Consumer Packaged Goods and Logistics, Energy, Utilities, Resources and Services, Communication, Telecom OEM and Media, Hi-Tech, Life Sciences and Healthcare. They further give you geography wise break up such as North America, Europe, India and Rest of the world. These geography and divisions are known as segments of the software company.
Here is how the software and IT company’s segment wise revenue and results are reported;
(In ₹ Crore)
|Particulars||Quarter ended June 30, 2022||Quarter ended March 31, 2021||Quarter ended June 30, 2022||Year ended March 31, 2022|
|Revenue by business segment|
|Financial Services (1)||10,562||10,096||9,217||38,902|
|Energy, Utilities, Resources and Services||4,259||3,872||3,371||14,484|
|Life Sciences (4)||2,257||2,140||1,891||8,517|
|All other segments (5)||940||954||827||3,450|
|Less: Inter-segment revenue||–||–||–||–|
|Net revenue from operations||34,470||32,276||27,896||121,641|
|Segment profit before tax, depreciation and non-controlling interests:|
|Financial Services (1)||2,754||2,578||2,358||10,314|
|Energy, Utilities , Resources and Services||1,145||1,111||1,022||4,225|
|Life Sciences (4)||535||583||571||2,380|
|All other segments (5)||41||76||100||167|
|Less: Other Unallocable expenditure||950||890||829||3,476|
|Add: Unallocable other income||676||637||622||2,295|
|Less: Finance cost||56||50||49||200|
|Profit before tax and non-controlling interests||7,534||7,543||7,176||30,110|
- Financial Services include enterprises in Financial Services and Insurance
- Retail includes enterprises in Retail, Consumer Packaged Goods and Logistics
- Communication includes enterprises in Communication, Telecom OEM and Media
- Life Sciences includes enterprises in Life sciences and Health care
Similarly a FMCG company will report segment wise reports based on its business units.
Here is an example to show you how segment wise revenue and results are reported by a FMCG company;
(In ₹ Crore)
|Particulars||3 months ended 30.06.2022||3 months ended 30.03.2021||3 months ended 31.03.2022||Year ended 31.03.2022|
|FMCG – Cigarettes||7,464.10||5,802.67||7,177.01||26,158.31|
|FMCG – Others||4,458.71||3,731.40||4,148.62||16,023.32|
|Paperboards, Paper & Packaging||2,267.22||1,582.65||2,182.77||7,641.62|
|Less: Inter-segment revenue||3,303.60||1,863.75||1,379.83||5,817.56|
|Gross revenue from sale of products and services||19,695.12||14,176.72||17,569.76||64,618.23|
|FMCG – Cigarettes||4,469.76||3,461.91||4,357.44||15,768.45|
|FMCG – Others||206.87||174.28||238.47||934.93|
|Paperboards, Paper & Packaging||612.98||392.83||449.69||1700.00|
|ii) other un-allocable (income) net of unallocable expenditure||(143.87)||(206.28)||(247.77)||(734.25)|
|Profit Before Tax||5,950.49||4,467.31||5,620.35||20,722.99|
Here is another example of a FMCG company showing how segment wise revenue and results are reported;
(In ₹ Crore)
|Particulars||Quarter ended 30th June 2022||Quarter ended 30th June 2021||Quarter ended 31st March 2022||Year ended 31st March 2022|
|Segment Revenue (Sales and Other operating income)|
|Beauty & Personal Care||5,364||4,573||4,712||19,460|
|Foods & Refreshment||3,627||3,319||3,698||14,105|
|Others (includes Exports, Consignment, etc.)||350||226||302||1,050|
|Total Segment Revenue||14,272||11,915||13,462||51,193|
|Beauty & Personal Care||1,411||1,287||1,236||5,354|
|Foods & Refreshment||578||600||713||2,623|
|Others (includes Exports, Consignment, etc.)||129||54||96||308|
|Total Segment Results||2,987||2,603||2,984||11,478|
In addition to segment wise revenues and results, the company also discloses segment wise assets and liabilities to have more clarity on its financial positions.
Segment ratios: How to analyze company’s financial health
A variety of segment ratios can be computed to analyze the financial statements of a company.
Here are the most important segment ratios used by financial analysts;
|Segment margin||segment profit (loss) / segment revenue|
|Segment turnover||segment revenue / segment assets|
|Segment ROA||segment profit (loss) / segment assets|
|Segment debt ratio||segment liabilities / segment assets|
Segment margin is the amount of profit a particular business unit / division is able to make for a particular period. Knowing the segment margin of each division you can get an accurate picture of the whole business. It will tell you which division is creating more value for the company and what are its strengths and weaknesses.
Segment margin can also be obtained for a geography or a region to know which part of the geography contributes most to the company. You can easily know which divisions, or geography or product lines of the company are performing well and which are not.
Segment turnover ratio
To measure the overall efficiency of a business unit or division, you can calculate segment turnover ratio.
You need to divide that business unit’s revenue by its assets to get the ratio. It will show you how efficiently the company has used that business unit’s asset to generate revenue.
Instead of taking revenue in the numerator of turnover ratio, if you take profit or loss of the business unit/division, you will get that segment’s ROA, which stands for return on assets.
It tells you how efficient the management is in generating profit out of the business unit’s assets.
Segment Debt ratio
The formula to calculate segment debt ratio shows that it’s a comparison of liabilities and assets of a business unit. This shows the financial health of a particular business unit or division in terms of debt to asset ratio.
The most important ratio analysts and investors look at is growth in revenue, growth in results and segment margin.
This will enable them to compare a particular segment with another company who is into the same line of business. Other ratios as discussed above help them to analyze further into the financial conditions of a company.