Business Segment Reporting

Business segment reporting breaks out a company's financial data by company divisions, subsidiaries or other segments. In an annual report, the purpose of business segment reporting is to provide an accurate picture of a public company's performance to its shareholders. For upper management, business segment reporting is used to evaluate each segment's income, expenses, assets, liabilities and so on in order to assess profitability and riskiness.

Accounting standards require that segments align with the company's reporting structure. The rationale behind this is to enable investors to view the company as it appears to top management. Investors are then better able to evaluate a company's performance, judge its prospects and understand the company as a whole.

Not all segments must be reported. According to U.S. Generally Accepted Accounting Principles (GAAP), public companies must report a segment if it accounts for 10% of total revenues, 10% of total profits or 10% of total assets. International standards differ somewhat.

A large bank, for example, might segment its reporting to account for its consumer lending, commercial lending and credit card segments. If the bank had operations in both North America and Latin America, it might report on those separately as well.