How to Break 18% Revenue Growth into Segment Contributions
A simple average of segment growth rates can differ from overall revenue growth. Learn to weight growth by prior-year revenue shares and identify acquisition and currency effects separately.
Overall revenue growth can be calculated by adding each business’s growth rate multiplied by its share of prior-year revenue. Use the prior-year weights that form the comparison base, rather than this year’s weights, and align consolidation scope and intercompany eliminations.
Add the increases in revenue before converting them to percentages
Subtract last year’s revenue from this year’s revenue for each business. Divide each increase by the company’s total prior-year revenue to calculate its contribution to overall growth. A small business can double while making only a limited contribution to company growth, and a small decline in a large business can offset that contribution. Averaging business growth rates is generally incorrect unless all businesses are the same size. Clearly label the results as percentage-point contributions to the growth rate, rather than growth rates themselves.
Reconcile segment revenue with consolidated revenue
Check whether segment disclosures show only external revenue or include intercompany transactions. Adding segment revenues that include intercompany transactions can produce a total above consolidated revenue. IFRS 8 segment disclosures are a starting point, but reclassification or business disposals may change the comparison basis. If the company has restated prior-year figures, use those comparatives. If it has not, do not draw firm growth conclusions using the new classifications. Include unallocated revenue and adjustments in the table so it reconciles to the company total.
Show organic growth and external effects separately
Revenue from newly consolidated acquisitions and currency translation effects differ from sales growth in existing operations. If the company provides growth on a constant-scope, constant-currency basis, read its methodology. To estimate it yourself, you need both foreign-currency revenue and exchange rates; applying one exchange rate to all overseas revenue can introduce substantial error. Do not add price-volume decomposition and segment contribution decomposition together in the same table. Explain that they describe the same revenue increase from different perspectives.
Worked example
Hypothetical example: Last year, Business A had revenue of KRW 60 billion and Business B KRW 40 billion, for total company revenue of KRW 100 billion. This year, A has KRW 66 billion and B KRW 52 billion, increases of KRW 6 billion and KRW 12 billion respectively. Total growth is 18 ÷ 100 = 18%, with contributions of 6 percentage points from A and 12 percentage points from B. The simple average of the businesses’ growth rates of 10% and 30%, or 20%, is incorrect. If B’s increase includes KRW 7 billion of newly acquired revenue, the simple increase on the existing scope, excluding that revenue, is KRW 11 billion, or 11% of the company’s prior-year revenue.
What to check
- Use total prior-year revenue as the common denominator for overall growth.
- Do not mix revenue before and after intercompany eliminations.
- Check whether segment classifications changed.
- Avoid counting acquisition, disposal, and currency effects twice.
Sources and primary materials
This is educational material about research methods. For an actual company decision, verify the filings and primary sources for the relevant period.