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What is a segment in a company?

A company can have different segments. A segment can relate to different business lines, different product lines, or even different geographical areas. Management of the company should determine how to break down the business into segments so that they can effectively manage the business and explain trends in the business to investors or shareholders.

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    The goal is to identify any revenue or expenses that are directly traceable to the segment. Then, a company should try to identify costs that can be “reasonably allocated” to the segment. The image below illustrates the calculation for operating profit (loss). This exercise can be a bit subjective as judgement is involved to determine...