What is a 'Segment'

A segment is a component of a business that generates its own revenues and creates its own product. This may mean it also has its own associated costs and operations. Usually, if a unit of a business can be cleanly and self-sustainably be separated or lifted out of the whole company, then it is a business segment. Financial information should be available for a segment's activities and performance and must also be periodically reviewed by the company's management before a decision can be made regarding the amount of capital that will be given to the segment for a particular operating period.

Segment is also referred to as "business segment."

BREAKING DOWN 'Segment'

A business segment is a portion of a business that generates revenue from selling a product or providing a service that is separate from the main line of focus for the business. For accounting purposes, FASB's SFAS 131 is the definitive source when it comes to accounting practices involving segments.

Example of a Segment

For example, XYZ Corporation makes widget presses. After years of making widget presses, it decides that it can very easily place some of its completed widget presses into service and manufacture some widgets as well. The widgets are produced and sold to customers. The widget division is a business segment because it generates its own revenue and incurs expenses as a result of the costs involved with producing the widgets.

Keep in mind that not every component of a company constitutes a segment. For example, XYZ Corp.'s marketing division would not be considered a segment because it does not perform operations that directly earn revenue.

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