When you’re looking to make smarter investment decisions in 2025, paying close attention to segment expense disclosures in 10-K filings can give you a real edge. These disclosures, which break down the expenses attributed to different business segments, offer insight into how companies allocate resources and manage their operations. Since the adoption of new accounting standards starting with fiscal years after December 15, 2023, segment expense disclosures have become more detailed and informative, reflecting how management actually views and runs the business[1][4].
To understand why this matters, consider that companies often operate multiple distinct segments—like technology, retail, or manufacturing divisions—and each segment’s profitability and expenses can vary widely. Before, 10-K filings might have shown revenue and profit by segment, but expense details were often vague or aggregated, limiting your ability to dig deep. Now, thanks to updated standards such as ASU 2023-07, companies must disclose significant segment expenses (SSEs) regularly provided to their chief operating decision maker (CODM), which means you get a clearer picture of costs at the segment level[1][4].
This enhanced transparency helps investors evaluate which parts of a business are more cost-efficient or burdened with high expenses, which in turn can signal potential growth opportunities or risks. For example, if a segment’s expenses are increasing disproportionately to its revenue, that might indicate inefficiencies or higher risk ahead. Conversely, a segment maintaining stable expenses while growing revenue might be a strong candidate for investment.
A practical way to leverage this information is by comparing the significant segment expenses disclosed across competitors in the same industry. Since companies have to use judgment in identifying which expenses are significant and regularly provided to the CODM, the disclosures can vary, but industry peers often reveal common cost drivers. If one company’s segment discloses unusually high selling expenses compared to others, you might want to investigate if they’re investing heavily in marketing for future growth or just facing rising costs with little return[1][3].
Also, the disclosures can include allocated corporate overhead, which can sometimes mask the true performance of a segment. Knowing how much overhead is allocated and how that compares to segment revenue or profit can help you assess whether management is effectively managing overhead costs or if some segments are subsidizing others. For example, a high allocation of corporate expenses to a low-margin segment could be a red flag or an opportunity if management plans to restructure[4].
When you read 10-K filings in 2025, look for the segment expense footnotes where companies break down expenses into categories like cost of goods sold, selling expenses, and depreciation at the segment level. These footnotes are now more detailed due to the significant expense principle, which requires companies to disclose expenses that are both significant and regularly provided to the CODM[1][4][5]. This means the expenses reflect the actual information management uses to run the business, giving you a more authentic view.
It’s also helpful to track changes over time. Since the new rules apply retrospectively, you can compare segment expenses from prior years to see trends. For example, if a company’s segment selling expenses are rising sharply over several years, but revenue isn’t keeping pace, that could signal a potential problem. On the other hand, consistent expense control with revenue growth often points to effective management[1].
One actionable tip is to integrate these segment expense insights into your financial models. Instead of relying solely on consolidated numbers, model each segment’s profitability by factoring in the detailed expenses disclosed. This granular approach can improve your forecasts and valuation accuracy. For instance, if you notice a particular segment has high R&D expenses disclosed as significant segment expenses, you might anticipate future innovation-driven growth and adjust your valuation accordingly.
Keep in mind the new disclosures also extend to interim financial statements starting in 2025, so quarterly reports will give you ongoing insight into segment performance throughout the year, not just at year-end[1][3]. This means you can react more quickly to changes in segment expenses, such as a sudden spike in raw material costs or marketing spend, and adjust your investment thesis in near real-time.
In addition, some companies might disclose multiple segment profit or loss measures, reflecting different management views. While this can seem complicated, it’s valuable because it shows how flexible management is in assessing performance. You should pay attention to whether these measures align with GAAP figures or are non-GAAP, and look for reconciliations in the notes to understand differences. This transparency helps you better interpret the segment data and reduces the risk of being misled by selective reporting[3].
Let me share a quick example from a hypothetical company: Suppose TechCo discloses three reportable segments—Consumer Electronics, Cloud Services, and Industrial Solutions. Their 10-K shows that while Consumer Electronics has stable revenue growth, its significant segment expenses for selling and marketing have jumped 20% year-over-year, whereas Cloud Services has a stable expense ratio but growing R&D costs. As an investor, you might view the Consumer Electronics segment’s expense increase as a potential warning sign unless justified by expanding market share, while the Cloud Services segment’s rising R&D might be a bet on future innovation. Without these detailed disclosures, you’d only see aggregated expenses and miss the nuanced story[1][4].
Statistics back the value of this approach: According to a recent analysis of Fortune 500 companies’ filings, about 70% had already adopted these enhanced segment expense disclosures by early 2025, and their disclosures showed wide variability reflecting different business models and management styles[1]. This variability is a goldmine for investors who take the time to study it carefully.
To sum up, here are some practical steps to leverage segment expense disclosures in your investment process:
Focus on the significant segment expenses footnotes in 10-K filings to understand cost drivers at the segment level.
Compare segment expense trends over multiple years to spot improving or deteriorating efficiency.
Benchmark segment expenses against industry peers to identify unusual cost structures or potential competitive advantages.
Incorporate segment-level expense data into your financial models for more precise forecasting.
Watch interim filings for quarterly updates to stay ahead of changes in segment performance.
Pay attention to management’s use of multiple profit or loss measures and understand their reconciliation to GAAP.
By adopting this approach in 2025, you’re not just looking at a company’s overall income statement—you’re gaining insight into the engine rooms of their business. That deeper understanding can help you identify winners early, avoid hidden risks, and make investment decisions that are smarter and more informed. Remember, the devil is in the details, and segment expense disclosures in 10-K filings are one of the best-kept secrets for investors willing to dig a little deeper.