Understanding segment disclosures in the 2025 financial statements is more important than ever for investors, analysts, and anyone interested in how companies really perform across their different business lines. With recent updates to accounting standards, companies must provide more detailed and transparent information about their operating segments, which means financial reports now offer deeper insights into how each part of a business contributes to overall results. If you’ve ever wondered how to read these disclosures or why they matter, this article will guide you through the key changes, practical examples, and tips to make sense of what you’re seeing.
First off, it’s helpful to know what “segment disclosures” are. Simply put, companies that operate in multiple lines of business or geographic areas break down their financial results by these segments. This lets stakeholders see which parts are driving growth, which might be struggling, and how resources are allocated. The foundation for these disclosures is ASC 280, a U.S. accounting standard that governs how companies identify and report segments. In 2023, the Financial Accounting Standards Board (FASB) introduced updates through ASU 2023-07 to improve segment reporting, with these changes taking effect for fiscal years starting after December 15, 2023, and interim periods in 2024 and beyond[1][3][5].
One of the biggest shifts in 2025 is that companies now have to disclose significant segment expenses, not just revenues and profits. Previously, segment reporting focused mostly on revenue, profit or loss, and assets, but the new rules require companies to be more upfront about major costs within each segment. This helps users understand what’s driving profitability or losses in detail. For example, a technology company might break down expenses into research and development, sales and marketing, and manufacturing costs for each segment, allowing investors to see where money is being spent and how efficiently[3][4].
Another important update is the disclosure around the Chief Operating Decision Maker (CODM). The CODM is the person or group responsible for allocating resources and assessing segment performance—often a CEO or a senior management committee. Now, companies must disclose the CODM’s title or group name and explain how this decision maker uses the segment profit or loss measures to manage the business. This adds a layer of transparency, showing investors not only the numbers but how management interprets and uses them in decision-making[3][5].
If you’re reading a company’s 2025 financial statements, here’s what you should look for in segment disclosures:
Identification of reportable segments: The company should clearly define which segments it reports on, often based on how management organizes the business. For example, a multinational corporation might have segments for North America, Europe, and Asia, or by product line like consumer electronics, software, and services[1][5].
Segment revenue and profit or loss: These are the basics, but now expect more granularity in how profit or loss is calculated, including which expenses are allocated to segments.
Significant segment expenses: Look for disclosures about the types of expenses considered material for each segment and how these are managed.
CODM information: Check who the CODM is and how they use the segment information, providing context on management’s perspective.
Comparative disclosures: When segments change between periods, companies must recast prior period information to maintain comparability, which helps track trends accurately[6].
Why do these changes matter in practice? Consider this scenario: You’re evaluating a diversified company with several business lines, like manufacturing and software services. Without segment expense disclosures, you might see that one segment is less profitable but not understand if that’s due to high research costs or operational inefficiencies. With the new disclosures, you can see expense breakdowns that reveal whether heavy R&D spending is a strategic investment or if costs are ballooning without clear returns. This level of insight supports better investment decisions and encourages companies to be more accountable for how they manage each part of their business[1][3].
For companies, preparing these disclosures requires strong coordination between finance, operations, and management. They need to ensure data is accurate, segment definitions align with management reporting, and that disclosures comply with the new standards. Many organizations are investing in systems and controls to capture the necessary detailed segment data effectively. This is not just about compliance; it’s a strategic tool to communicate performance and growth potential clearly to the market[1][3].
From a practical standpoint, if you’re an investor or analyst trying to decipher these disclosures, here are a few tips:
Read the footnotes carefully. Segment disclosures often appear in the notes section of financial statements and provide detailed tables and explanations.
Compare segment margins over time. Look for trends in segment profitability, and how expenses evolve, to spot areas of strength or concern.
Pay attention to the CODM commentary. This can offer clues about management’s priorities and how they view segment performance beyond raw numbers.
Watch for non-GAAP measures. Some companies may disclose additional segment profitability metrics used internally by management. These must be clearly identified and reconciled to GAAP measures to avoid confusion[2].
Statistics show that since the introduction of these enhanced segment disclosure requirements, investors report greater confidence in assessing diversified companies. According to surveys by accounting firms, over 70% of investors say the new detailed segment expense disclosures improved their understanding of companies’ operational drivers and risks[1][5]. This trend underscores how transparency helps the market function more efficiently.
It’s also worth noting that even companies with a single reportable segment now face expanded disclosure requirements. Previously, single-segment entities had fewer obligations, but under ASU 2023-07, they must provide the same level of detail as multi-segment companies. This levels the playing field and gives investors a clearer picture regardless of company complexity[3][4].
In summary, deciphering segment disclosures in 2025 financials means looking beyond just revenue and profit numbers. The new rules bring more clarity on expenses, management’s role, and how segments contribute to the big picture. Whether you’re an investor, analyst, or just curious about corporate reporting, understanding these changes equips you to make smarter evaluations. And for companies, embracing these disclosures is an opportunity to tell a more complete story about their business, build trust, and attract long-term support.
So next time you open a financial report, take a moment to explore the segment disclosures. They’re like a map showing where value is created and costs are incurred, revealing the true heartbeat of a company’s operations in 2025 and beyond.