Course 310: Segment Analysis
Research Revenues
In this course
1 Introduction
2 Research Revenues
3 Profitability Is Key

The first thing to look for is how the company's various businesses contribute to its total revenues. The company may have a big sideline business that reduces the influence of mainline operations. Take Philip Morris MO. You may consider it a tobacco company, but food and beer operations accounted for 43% of overall sales in 1998. In analyzing Philip Morris, we can't just concentrate on the tobacco piece of the puzzle. We have to consider issues related to its food and beer businesses, as well. For some companies in cyclical industries, a variety of businesses can lessen the impact of cyclicality on the bottom line. A chemical company, for example, may sell both industrial chemicals, which are very cyclical, and chemicals used in consumer products, which aren't cyclical at all. The latter division's steady sales would help offset the cyclical segment's ups and downs. Alternatively, a cyclical company may have divisions that have different cyclical peaks, so that while some segments are in a cyclical trough, others are enjoying strong demand. As the economic cycle moves along, the segments in the trough will strengthen as the strong segments weaken. International sales can help, too, because foreign countries often have a different economic cycle than the U.S. market. Overall, a diversified company's results should be more stable than a nondiversified company's results.

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