Evaluating a Company’s Revenue a ...
Revenues represent the total sales a company achieves within a specific period, often... Read More
The most widely used industry classification method is the grouping of companies offering similar products and/or services. A company’s classification is usually based on its principal business activity or the source from which the company derives a majority of its revenues or earnings. Sectors are used to describe a group of related industries.
Companies are sometimes grouped as cyclical or non-cyclical (defensive), depending on the company’s relative sensitivity to the business cycle. A cyclical company is one whose profits are strongly correlated with the strength of the overall economy and generally experiences above-average profit variability. Examples would include automotive, construction, heavy equipment, and airline industries.
A non-cyclical company is one whose performance is largely independent of the business cycle, such as a public utility company.
Statistical approaches group companies based on the correlations of past securities’ returns, often forming non-intuitive groups of companies through cluster analysis.