The Most Important Concepts in Finance
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The Most Important Concepts in Finance

Edited by Benton E. Gup

Anyone trying to understand finance has to contend with the evolving and dynamic nature of the topic. Changes in economic conditions, regulations, technology, competition, globalization, and other factors regularly impact the development of the field, but certain essential concepts remain key to a good understanding. This book provides insights about the most important concepts in finance.
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Chapter 8: Insights from corporate life cycles

Benton E. Gup

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All products, companies, and industries evolve through stages of development that are called a life cycle. The product and industry life cycle is an analytical tool that can be used to analyze the growth of sales and profit potential for products, companies, and industries. It also provides information about financing requirements, risks, and a frame of reference for analyzing strategies for growth. Growth and survival go hand in hand. This chapter examines the concept of the product and industry life cycle and suggests some of the ways that it can be used. Hereafter, it is just referred to as the “life cycle.” LIFE CYCLE In some respects, the life cycle is analogous to the development of human beings. In the early stages of human development, the rate of growth is rapid, and then the rate of growth tapers off as we approach adulthood. After a relative long period of maturity, some stagnation occurs. While most human life spans are less than 100 years, some companies are hundreds of years old. For example, Hartford Financial Services Group, was founded in 1810, Proctor & Gamble Co. was founded in 1837, and Exxon Mobil Corporation was founded in 1870. By knowing what phase of the life cycle a firm or product is in, management can develop appropriate strategies, which will be explained shortly. As shown in Figure 8.1, the four phases of development of the life cycle are called pioneering, expansion, stabilization, and decline.

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