Corporate Life Cycle

 Corporate life cycle

 

        Just as human beings are born grow up age and decline companies go through a life cycle. There’s a startup phase we come up with a business idea an idea that you are not sure will work out but an idea that you think might make you money. In the second stage, you convert that idea into a commercial product, and in the third stage that commercial product kind of kicks into growth and starts delivering revenues, and the fourth stage you start to see earnings from those revenues, and then in the fifth stage you start to matures as a business major growth drops off but still make money and then there’s a decline stage. 

A lot of businesses never make it past the first stage quite a few don’t make it past the second stage but if you look at any large business today or any successful business it has gone through most of the phases of this cycle. There are three big decisions that companies make in their lifetime.

1. Investing decisions
2. Finance decisions
3. Dividend decisions

        In the context of the life cycle early in the processes, it’s the investing decisions that rule, it’s a big project you take that will determine whether you make money or not and whether you will succeed as a business. As you age company focus shifts to the capital structure decision. And then as you start to decline dividend policy starts to rule. In another word you are liquidating our business, you are harvesting your business. 

I will bring some real word examples along with the corporate life cycle chart. 

• The first stage is of course start-ups. Start-ups in different sectors.

                         Ex- blockchain-based businesses. AI

• The second stage is a young growth company. These businesses are like teenagers. Teenage companies don't always think through the consequences. But the future is full of potential.

                         Ex- Uber & Tesla

• And the next major stage is mature growth companies. Here you get incredible earnings, great cash flows, and continue to grow.

                         Ex-Google, Apple

• Mature stable companies. In this stage, companies are at their pinnacle. They have to

defend themselves from competitors and most importantly they have to find new markets to grab.

                         Ex- Walmart, Coca-Cola

• Nobody wants to get in for this final phase. Which is you are in decline. Companies 

born, they mature they decline. It's the nature of the process.

                         Ex-General Electric

        When you get into the decline stage the biggest challenge you face is psychological pressure. In Decline Company’s growth rates tend to become negative, revenue decline, margins shrink, and liquidation along the way. As an investor, you should give attention to the corporate life cycle when picking a stock for your basket.