Industry Life-cycle and Strategies

Consider the life cycle of various industries. Is it important to be familiar with which industries are in a given stage of the industry life cycle?

In my opinion it is important to be familiar with the stages of the industry life cycle and where certain industries are within that life cycle. “Industry life cycle might be described by four stages: a start-up stage, characterized by extremely rapid growth; a consolidation stage, characterized by growth that is less rapid but still faster than that of the general economy; a maturity stage, characterized by growth no faster than the general economy; and a stage of relative decline, in which the industry grows less rapidly than the rest of the economy, or actually shrink”(Bodie et. al. 2014). It is important to know if an industry is fairly mature or declining.

Consider the commonly used financial statements—income, balance sheet, owners’ equity, and statement of cash flows. Do they report different types of information to the investor?

Every income statement tells an investor a part of the financial story of a company and together the full story is told. The income statement summarizes the company’s profitability over a period of time. “It presents revenues generated during the operating period, the expenses incurred during that same period, and the company’s net earnings or profits, which are simply the difference between revenues and expenses” (Bodie et. al. 2014). The balance sheet of a company gives a picture or snapshot of the financial condition of a company at a certain moment in time. The balance sheet shows the company’s assets, liabilities, and stockholders’ equity. Assets is equal to liabilities plus stock holders equity. The statement of cash flows tracks the cash implications of transactions (Bodie et. al. 2014).

Consider all of the types of both equity and debt. For example, consider common or preferred stocks and taxable or tax-free bonds. What impact do these differences have on the firm or investor?

Preferred stocks dividends are guaranteed by a company choosing to reinvest the dividends. Preferred stocks and common stocks have dividends that have to pay out each year, month, or whatever the payout cycle is for that firm. investors may be more willing and open to invest in a company who has a history of paying dividends consistently.

Bodie, Z., Kane, A., & Marcus, A. J. (2014). Investments (10th ed.). New York, NY: McGraw-Hill Education. ISBN: 9780077861674. Retrieved from https://bookshelf.vitalsource.com/#/books/125962613X/