Industry Lifecycle Analysis – Definition

Cite this article as:"Industry Lifecycle Analysis – Definition," in The Business Professor, updated April 7, 2020, last accessed October 23, 2020, https://thebusinessprofessor.com/lesson/industry-lifecycle-analysis-definition/.

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Industry Life Cycle Analysis

Industry life cycle analysis is a tool for assessing industries and companies based on the stages of development at a particular period. It is an analysis of the different but corresponding stages of an industry life cycle. Four stages have been identified in the lifecycle of a business or industry, they are; expansion, peak, contraction, trough. Other terms used in describing these stages are introduction, growth and maturity.

Businesses and analysts use the industry life cycle analysis to evaluate the developmental stage a business is in and also make future projections of the performance of the business or industry.

Industry Life Cycle Analysis

When analysts conduct the industry life cycle analysis, the information gained is used in defining where a company sits in the cycle and also determine the risk or return ratio of an investment in the company. Although, it is largely assumed that an industry’s life cycle follows a general economic cycle, each stage of an industry life cycle is inherently different and requires an approach different from the former.

The economic cycle a country is at a particular time, as well as the environment of a business determines how well an industry performs. For instance, in a leading economy, an industry life cycle may lead and in a lagging economy, the same is obtainable.

There are four stages in an industry life cycle, these are;

  • Expansion: During this stage, a company or an industry experiences growth, increased sales and profits margins and develop the capacity to produce more goods needed to meet the demand of the customers.
  • Peak: At this stage, the growth has reached the last stage as well the demand have been met, it then drops to level zero. The profit previously accumulated also flattens out as growth drops to zero.
  • Contraction: This is a period when an industry experiences lower sales and profits, the company also records less activities. The contraction stage is often accompanied by a recession in the economy.
  • Trough: This is the period when the industry begins to gather momentum and heads towards recovery. Once the industry regains strength, it begins its life cycle again with expansion.

References for “Industry Life Cycle Analysis

www.businessdictionary.com/definition/industry-life-cycle-analysis.html

https://www.investopedia.com › Investing › Financial Analysis

www.indiaclass.com/industry-life-cycle-analysis/

https://www.kbmanage.com/concept/industry-life-cycle

https://corporatefinanceinstitute.com › Resources › Knowledge › Strategy

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