Segment reporting

The disclosure that splits revenue, result and capital employed by business line and by geography, following the way management itself runs the company.

A diversified group reporting ₹1,600 crore of capital employed in its chemicals segment against ₹410 crore of segment result is earning about 25.6% there, and a much lower figure elsewhere would mean the group average hides two very different businesses.

This is the raw material for a sum-of-the-parts valuation and for the single most useful question about a conglomerate: which segment consumes the capital, and which one earns the return?

Segments are defined by management, so they can be redrawn. A company that merged two segments in the year its weaker one deteriorated has told you something without meaning to. Keep a five-year table of segment capital employed and result, and rebuild it when the definitions change.

One table. Five years. Rebuilt by hand.

Geographical segments carry information the business split does not. A company earning 60% of its revenue abroad has currency exposure, different competitive conditions and different growth rates in each market, and the geography table is the only place a reader can see the mix. For an Indian exporter it also separates the part of growth that came from the rupee weakening from the part that came from selling more, which is a distinction the consolidated revenue line erases completely.