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Basic Question 0 of 7

The revenues and profits of ______ industries are least affected by economic fluctuations.

I. defensive
II. stable
III. growth
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User Contributed Comments 4

User Comment
vsimco I'm not sure about growth "growth was defined as above average industries", but this asking which ones are most affected by fluctuations. A growth industry can earn 40% in good times, and 15% in bad times 62.5% drop, a non-groth might earn. A cyclical might earn 15% normally, but drops to 6% which is a 60% drop. Obviously the growth is still earning above average, but it still might be higle affected by the fluctuations.
CJPerugini ^ I agree. A perfect example is a new tech start-up. A growth company in a cyclical industry. These companies are often more sensitive to economic fluctuations.
ascruggs92 ^This is about companies in growth industries, not growth companies in cyclical industries, so that's irrelevant.

vsimco: While your example is true, it is also too extreme to be considered a realistic example. Industry contraction varies in a recession, but total GDP only decreases by a few percentage points at worst (Q4 2008 was about 6.5%). This happens to mature industries because the market is more competitive, supply is pretty close to demand, and the loss of a small % of the market can put some companies out of business. in growth industries, demand greatly exceeds supply, thus, a small % loss in potential customers (or even a large one) is not likely to have the same profound effect it would in a cyclical or even a defensive.
khalifa92 oh so non-cyclical can be sorted to growth or defensive.
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Learning Outcome Statements

compare methods by which companies can be grouped;

explain the factors that affect the sensitivity of a company to the business cycle and the uses and limitations of industry and company descriptors such as "growth," "defensive," and "cyclical";

CFA® 2024 Level I Curriculum, Volume 4, Module 40.