Business segments are separately identifiable parts of a company’s business operations. Furthermore, in accounting, the activities, assets and results of each segment can be clearly identified. In [[audited financial statements]], public companies are required to disclose these segments. Also known as business segments.
Description of “Business Segment”
Disclosure of business segments is usually based on the group of products/services produced or based on operational geographic location. For management, dividing operations into smaller segments allows them to provide a more detailed picture of business performance.
Benefit Business Segment
This segmentation helps them to measure which segments are performing well and which ones need improvement. During times of difficult economic growth, segmentation also makes it easier for management to make decisions regarding efficiency measures or options for discontinuing operations in certain segments.
Take for example a company that operates several electronic product segments. The company initially grew from a laptop manufacturer. They then develop software to support the operation of their laptop devices. The company has also expanded into other electronic products.
Currently, the company produces laptops, cell phones, headphones, music players and much more. From these products, management divides the company’s overall performance into smaller segments based on products. The goal is to measure where the company excels.
Without any type of segmentation, management might judge that the company’s recent profits came from all segments. In fact, sales of the cellphone and headphone segment have slowed due to declining consumer demand. Only the laptop segment is still successful and supports the company’s overall profits.
Performance information from each segment can be a guide for management to take strategic steps to improve the company’s performance in the future. They can sharpen their strategies to offer competitive products or even, stop producing the product altogether.
As we see, separating the company into different business segments helps management analyze not only the company’s current structure, but also helps them evaluate performance by product, customer, and market location.