STEP 1A map of Section II's seven boxes
If financial statements are a report card, the Business Overview is the student's school record. It tells what the student is good at and what they spend their time on.
So far we've read Robin Bakery's numbers with the balance sheet, income statement and cash flow statement: sales of KRW 12 billion, operating profit of KRW 1.5 billion, operating cash flow of KRW 1.8 billion. But those numbers alone make it hard to know "why they came out that way." Whether the KRW 12 billion of sales came from bread or from cake, how much it hurts when flour prices rise, and how many hours the ovens are running aren't in the tables.
This story is told in the annual report's . As you saw in Lesson 5, all listed companies write it in the same format, so the sub-items are the same seven slots every time. Knowing just the slot names lets you find the information you want right away.
| Box | What is written there | Question it mainly answers |
|---|
| 1. Business overview | A one- or two-page summary of what the company does | What kind of company is this? |
| 2. Major products and services | Sales and share by product and segment, price changes of major products | What is what percent of sales? |
| 3. Raw materials and production facilities | Key raw materials, suppliers and price changes; production capacity, output and utilization; capital investment | What shakes costs? How hard is it running? |
| 4. Sales and order status | Sales by product and region, sales channels, order backlog (order-based industries) | Who does it sell to and how? How much work is left? |
| 5. Risk management and derivatives | FX, interest rate and commodity risks and responses | Which winds is it weak against? |
| 6. Major contracts and R&D activities | Important contracts, R&D spending and results | What is it doing for the future? |
| 7. Other reference matters | Market conditions, competition, market share, regulation and more | Where does it stand in the market? |
Box names: confirmed from the DART annual report (general corporation) table-of-contents tree (same source as Lesson 5; rechecked against the Samsung Electronics 2025.03.11 annual report's table of contents on 2026-10-08). The description of each box is a MoneyCalcs summary.
You don't need to read all seven boxes. At first, just reading three boxes, No. 2 (what it sells), No. 3 (what it makes it with and how hard it runs) and No. 4 (who it sells to and how much work is left), shows the skeleton of the company. No. 1 is an introduction, so skim it, and Nos. 5–7 are boxes to look up when a question comes up.
Quick checkYou want to know "what percent of this company's sales is semiconductors?" Which box number in Section II should you open first?
No. 2, Major products and services. A table of sales and share by product and segment comes first. More finely divided sales by product are in No. 4, "Sales and order status."
STEP 2Reading revenue mix, raw materials and utilization
There are four numbers you must pull out of Section II: what it sells, what it makes it with, how hard it runs, and how much is left to come.
1. Revenue mix: what is what percent
The is a company's identity. The fictional Robin Bakery's KRW 12 billion in sales consists of bread KRW 7.2 billion (60%), cakes KRW 3.6 billion (30%), and coffee KRW 1.2 billion (10%). Even among 'bakeries', a large share of cakes concentrates sales around year-end and anniversaries (seasonality, Lesson 17), while a large share of coffee makes the business more sensitive to coffee bean prices and exchange rates. The more concentrated the mix is in one product, the more that product's fate is the company's fate.
2. Key raw materials: what shakes costs
In Lesson 13 we saw that of Robin Bakery's cost of goods sold of KRW 7.2 billion, raw materials are KRW 4.3 billion. II-3 states what those raw materials specifically are, who they are bought from and how prices have changed. For Robin Bakery (hypothetical), they would split roughly into flour KRW 1.5 billion, butter and dairy KRW 1.2 billion, sugar, fruit and others KRW 900 million, coffee beans KRW 400 million and packaging KRW 300 million. Flour and butter make up over 60% of raw materials, so when global wheat prices and dairy prices rise, margins are the first to be shaken.
3. Capacity and utilization: how hard it runs
= actual output ÷ production capacity. If an oven can run 10 hours a day but runs only 7.5 hours, utilization is 75%. When utilization is low, higher sales just mean running the oven more, so fixed costs do not rise and the operating leverage from Lesson 14 works strongly. Conversely, once utilization exceeds 90%, selling more requires new ovens and stores, so capital expenditure (FCF, Lesson 20) grows.
Robin Bakery's money-making map (hypothetical)
Tap a donut slice or the buttons above. The revenue shares (bread KRW 7.2 billion, cake 3.6 billion, coffee 1.2 billion) are hypothetical figures shared across the course, and the raw material mix, price changes, utilization and sales channels are hypothetical examples made for this lesson.
4. Order backlog: sales still to come
Companies such as shipbuilders, defense contractors, and builders, which take orders first and build over several years, report their in II-4. It is the size of work already contracted but not yet recognized as sales. If the backlog is 3 times annual sales, three years of work is stacked up, so future sales are relatively visible. Robin Bakery has no backlog, but the cake reservation deposits from Lesson 8 (KRW 300 million in advances received) play a similar role. The more money collected in advance, the more next quarter's sales are effectively booked.
Common misconceptions
- "The business with the largest share of sales also earns the most profit?"
- No. The share of sales and the share of profit are often different. Operating profit by segment must be checked separately in "Segment reporting" in the notes to the Section III consolidated financial statements. We'll open the notes in the next lesson.
- "The higher the utilization rate, the better, no matter what?"
- It's good for profitability right now, but near 100% it also means there is no room left to sell more and big capital expenditure will soon be needed. Look at the capital investment plan together with utilization.
- "The Business Overview is promotional writing by the company, so it can't be trusted?"
- The descriptive sentences carry the company's point of view, but numbers such as sales, share, production capacity and order backlog are disclosure information entered according to a set format. Read the sentences critically and the numbers carefully.
Quick checkA factory with a capacity of 1 million units a year made 920,000 units this year. If next year's orders rise 20%, what will be needed?
It will need to expand capacity. Utilization is 92%, so only 80,000 units of room are left, but a 20% increase needs about 1.1 million units. If expansion investment gets large, that year's FCF can shrink (Lesson 20).
STEP 3Drawing the structure from a real annual report
Now let's open Section II of a real annual report and draw the same map. This is practice in reading structure, not a stock recommendation.
Find it yourself on DART
- 1Search for the company name on DART and open Periodic disclosure → Annual report (Lesson 3).
- 2In the left table of contents, tap II. Business Overview → 2. Major products and services. The table at the top shows sales and share by segment and product.
- 3In "Price changes of major products" in the same box, see how the prices of the goods it sells have changed.
- 4In 3. Raw materials and production facilities, look at raw material suppliers and prices and the production capacity and utilization table.
A real annual report, II-2 sales of major products (redrawn from the screen)
Samsung Electronics · Annual report (2024.12) · II. Business Overview › 2. Major products and services
2A. Sales of major products (Unit: KRW 100 million, %)
| Segment | Main products | Revenue | Share |
|---|
| DX division | TVs, monitors, refrigerators, washing machines, air conditioners, smartphones, etc. | 1,748,877 | 58.1% |
| DS division | DRAM, NAND Flash, mobile AP, etc. | 1,110,660 | 36.9% |
| SDC | OLED panels for smartphones, etc. | 291,578 | 9.7% |
| Harman | Digital cockpits, car audio, etc. | 142,749 | 4.8% |
| Other | Intercompany eliminations between segments, etc. | △285,155 | △9.5% |
| Total | | 3,008,709 | 100.0% |
3B. Price changes of major products — average TV selling price down about 2%, smartphones up about 2%, memory up about 63%, OLED panels for smartphones down about 29% (year over year).
Source: DART Samsung Electronics annual report filed 2025.03.11 (rcpNo 20250311001085), II-2 original text, checked 2026-10-08. This is an example to show the structure and not an investment recommendation. Segment sales include intercompany transactions between segments, so they are subtracted under "Other" to make the total match (the same principle as intercompany elimination in Lesson 11).
This one table shows a lot. More than half of sales come from finished products (DX), but just below it is a sentence saying the average selling price of memory rose about 63% that same year. It is a clue to where the gross margin difference between 2023 and 2024 seen in Lesson 13 (30.3% → 38.0%) came from. The "why" behind the numbers is in the Section II sentences like this. However, how much each segment earned (operating profit) isn't in this table and must be checked in "Segment reporting" in the Section III notes.
Open II-3 and the raw material table appears. The same report lists mobile AP solutions (16.1% of purchases), display panels (11.2%) and camera modules (8.2%) as the main raw materials of the DX division, and below that shows the capacity, output and utilization table for three years. If raw material prices rise and the company can't raise product prices, margins shrink (Lesson 13), and if utilization falls, the fixed-cost burden grows (Lesson 14). The purpose of reading Section II is ultimately to anticipate in advance which way the income statement numbers will move.
Five questions to answer after reading
Tap a question to open a model answer for Robin Bakery (hypothetical) and where to look. When you study a real company, jot these five lines down as a note too.
How to use it in investing
| What you saw in Section II | How to usually read it | What to check next |
|---|
| One product is 70% or more of sales | That product's business conditions drive earnings | That product's price cycle (Economics Lesson 3) |
| A key raw material price spikes | If product prices can't be raised, margins fall | Price change section, gross margin in Lesson 13 |
| Utilization falls | Fixed-cost burden can cut profit even more | Operating leverage in Lesson 14 |
| Utilization of 90% or more + expansion plan | Securing room to grow, but an investment burden for a while | FCF in Lesson 20, investment plan in Section IV |
| Order backlog as a multiple of sales | Future sales are relatively visible | Order unit prices and cost increase risk |
It isn't always so. The shares and utilization in Section II are based on "last year," so they may already be priced in (Economics Lesson 20, priced in), and the important numbers differ by industry. Putting the Section II of companies in the same industry side by side makes differences much easier to see (Lesson 26).
Quick checkIn the real table above, what percent of the total is DS division sales, and how did memory prices change that year?
36.9%, and the average memory selling price rose about 63%. Reading the share table and the price-change sentence together lets you guess "which segment may have lifted earnings." Check the actual profit contribution in segment reporting in the notes.