NISM Certifications · NISM-Series-XV: Research Analyst · Industry Analysis
Which of the following best describes a cyclical industry in the context of the industry life cycle and business cycle analysis?
A cyclical industry is one whose sales and profits move strongly with the economic cycle, as with automobiles or capital goods. Demand rises in expansions and drops in slowdowns. Defensive industries like staples are stable, and structurally declining industries fall regardless of the cycle.
- AAn industry whose sales and profits move strongly with the overall economic cycle, such as automobiles or capital goodsCorrect
- BAn industry whose demand stays stable regardless of the economy, such as staple foods
- CAn industry in the decline phase with permanently falling demand
- DAn industry with no fixed assets
Explanation
Cyclical industries sell products whose demand is sensitive to income and credit conditions, so earnings rise in expansions and fall in downturns. Stable-demand industries are defensive, and a declining industry reflects structural, not cyclical, change.
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