Life-cycle stage
Where a company stands in a business's life — Development, Startup, Growth, Maturity, or Renewal / decline — decided by fixed rules over its own filings. No model and no AI: the same filings always give the same stage.
Two things are read. The first is the cash-flow pattern: the signs of operating, investing and financing cash flow, summed over the last two fiscal years so one lumpy year cannot move a company a stage. A young business burns cash, invests and raises money (− − +); a growing one earns cash, invests and still raises (+ − +); a mature one earns, invests and pays out (+ − −); a declining one sells assets to cover its operations (− + ±). This is Dickinson's 2011 classification (The Accounting Review). The second is the path of sales over three years, because a large grower that buys back stock files the mature signs, and a company whose sales are shrinking is not mature whatever its signs say.
Inputs
- Revenue. The latest twelve months, or the newest fiscal year.
- Sales growth a year. Compound growth between the newest fiscal year and the oldest of up to four.
- Operating cash flow. Summed over the newest two fiscal years.
- Investing cash flow. Summed the same way, signed as filed (spending is negative). Where a filing lacks the line, the capital spending stands in.
- Financing cash flow. Summed the same way, signed as filed. Where a filing lacks the line: the change in debt, less dividends and buybacks.
How to read it
The first rule that holds decides. Development: under $25M of revenue a year and no cash from operations. Renewal / decline: sales shrinking 3% a year or more. Burning cash from operations with sales up 25% a year or more: Startup under $10B of revenue, Growth above it. Otherwise, burning cash while investments are sold: Renewal / decline; burning cash under $10B of revenue with sales up 10% a year or more: Startup; any other cash burn: Renewal / decline. Growth: sales up 12% a year or more, or the + − + pattern with sales up at least 8% a year. Maturity: everything else that earns cash from operations. Banks and insurers are read on sales alone (Renewal / decline at −3% a year or worse, Growth at 12% or better, Maturity between), because their operating cash flow moves with deposits and loans, not with the life of the business.
How to use it
Read a company's other numbers against its stage: a Startup's losses and a Mature company's slow growth are expected; a Mature company losing cash, or a Growth company whose sales have stalled, is the question worth asking.
Limitations
A description of the filings, not a forecast. Cyclical companies (miners, steelmakers, farm equipment, oil producers) can read Renewal / decline at the bottom of a cycle and Growth at the top; a large acquisition can make one year's investing and financing look like a younger company's. The $10B line is read in the currency the company reports in.
In Kereon
Investing · Fundamentals. The stage is lit on a five-step track; the readings under it are the numbers the rules read.
Also called: life cycle, lifecycle, life-cycle stage, lifecycle stage, company life cycle, business life cycle, development stage, startup stage, growth stage, maturity stage, renewal, decline stage.