Useful and Limitation of Segmental Report

Pages: 3 (684 words) Published: October 21, 2010
The usefulness of segment reporting

Entities with diverse nature of business and different operation geographical areas will be subjected to various degrees of risks and returns. In this case, FRS 114 Segment Reporting established principles for reporting financial information, about the different types of products and services an enterprise produces and the different geographical areas in which it operates. As segment reporting requires disclosure of disaggregated information, it may helps users of financial statements to have better understanding of the enterprises past performance and future prospects. MAS have divided the group into 2 business segment which is Airline operation and cargo services in the segmental report. From the report, Airline operation contributed greatest profit which is 10.22billion while cargo service is about 1.82 billion. Thereby, they can assess the strength and weakness of the segments yet to determine portion of profit contributed by each segment in assistance to decision making.

Meanwhile, the assessment of the enterprise’s risks and returns will be conducted appropriately and more informed judgments as well. For instance, MAS has a consolidate debt ratio of 91.23% which generated greater risk and associated with potential higher return. Nevertheless, the airline operation segment which generated MAS main source of income has a debt ratio of 67.1% which mean the financing leverage is lower as well as lower risk associated. Therefore, creditors may evaluate the debts ratio of each segment in order to make judgment of how the organization utilizes their investment to generate profit.

Under segment reporting, most enterprises will identify their business and geographical segments as the organizational units for which information is reported to the board of directors and to the chief of executive for the purpose of evaluating each unit’s performance and for making decisions about future allocations of...
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