Segment (Assignment 11) Find and read your firms segment information in the s to the financial ments. (Its usually one of the last notes. ) What is the basis your firm has chosen upon which to report segments? Products or services 2. What are the names of your firms segments and what are the primary types of products that are sold in each? Complete the table below. Segment Name Types of Products Sold Water & Fluid Solutions Well pumps, sump pumps, water softeners, pool and spa equipment Technical Products Fitting manufactured equipment 3. To determine whether management is ‘growing one or more of the segments faster than the others, complete the following table by using the data provided in the notes.
Divide (1) the segments total expenditures for long-term assets by (2) the segments total assets. Do this for each segment for up to three years. Segment Name Total Expenditures for long-term assets /total assets Most Recent Year Next Most Recent Year 2nd Most Recent Yr Water & Fluid Solutions 49,241/ 4,778,206 = 0.10 39,631/ 4,586,313 = 0.009 36,513/ 3,911,334 = 0.009 Technical Products 15,806/ 4,778,206 = 0.003 8,336/ 4,586,313 = 0.002 15,388/ 3,911,334 = 0.004 4. Does your analysis in No.
3. indicate that management is "growing" one or more segments more rapidly than the others? Why might this be? Discuss. Based on my analysis on the growth of the different segments of the company, I am convinced that the management of Pentair, Inc is concentrating on ‘growing’ one segment more than the other. The management of Pentair, Inc. has concentrated on growing the Water & Fluid Solutions segment more than the technical products segments. This is clearly illustrated by the growth of the segment from a ratio of 0.009 to a ratio of 0.1.
In comparison, the technical products segment has only managed to grow from 0.002 to 0.003 which a less significant improvement compared to the other segment. The concentration on one segment at the expense of the other may be attributed to the level of revenues recorded by the two different segments. The company finds it lucrative to concentrate more on water & fluid solutions than technical products. The water & fluids segment seems to be more profitable than the technical products segment. 5.
Complete the table of segment information below. List the segment profit, segment assets, and return on segment assets (of each segment) for the most recent year and two prior years. List the most recent years information first. Divide column A by column B to obtain the return on segment assets. Segment Names Year A / B = Return on Segment Profit Segment Assets Segment Assets Water & Fluid Solutions 2011 58,311 3,792,188 0.02 2010 231,588 3,409,556 0.07 2009 163,745 3,205,774 0.05 Technical Products 2011 185,240 651,693 0.28 2010 151,533 728,969 0.21 2009 100,355 716,092 0.14 6.
Discuss the results of your segment profitability analysis and include the following. > What trends do you observe? I have observed that the technical products segment has a consistent positive growth whereas the water & fluids segment has a rather inconsistent growth pattern. > Are some segments performing better than others? Based on the analysis provided above, the technical products segment is performing better than the water & fluids segment. This is evident when we make comparisons of the two segments in terms of their return on segment.
The technical products segment has a return on segment ratio of 0.28 compared to that of water & fluids segment which has a ratio of 0.02. > What segment-related questions would you ask of management if you had the opportunity? Why is the company neglecting a more profitable segment and concentrating on a segment that has low returns? > Might overall profitability be enhanced by reallocating assets to some segments and away from others? Overall profitability may be enhanced through the reallocation of resources.
For instance, in the case of Pentair, Inc. the management should consider reallocating some of the resources from the water & fluids segment to the technical products segment. This is because the latter is performing better than the latter. ‘Does management address "segment strategies" in the Management Discussion and Analysis section of the Annual Report? What do they say? Discuss and explain. The management of the company has not provided a discussion on segment strategies. 7. To understand more about how your companys segment profits are generated, compute the profit margin, asset turnover, and return on segment assets for each of your firms segments.
Use the formulas from the Note above for your computations of each segments profit margin, asset turnover, and return on segment assets. Segment Name Segment Segment Return on Profit * Asset = Segment Margin Turnover Assets Water & Fluid Solutions 58,311/2,369,804 = 0.02 2,369,804/3,792,188 = 0.62 0.0124 Technical Products 185,240/1,086,882 = 0.17 1,086,882/651,693 = 1.67 0.2839 8. Discuss the comparative profit margins and asset turnover that you computed for your companys segments. Do they differ markedly or they a11 about the same?
If there are significant differences, is there anything about the nature of the various products in the different segments that would tend to explain the differences you found? Discuss. The two segments have a higher asset turnover than the profit margins. Additionally, the technical products segment has a higher profit margin and asset turnover than the water & fluids segment. The two segments have remarkable differences and this may be attributed to the nature of the two products (Nikolai, 2009). The water & fluids segment requires huge capital investment while the returns are relatively lower whereas the technical products segment requires relatively low capital investment and has higher returns.
Reference Nikolai, L. (2009). Intermediate Accounting. Chicago: Cengage Learning.