2024 CFA Level I Exam: CFA Study Preparation

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

I. defensive
II. stable
III. growth

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

describe industry classification methods and compare methods by which companies can be grouped

CFA® 2024 Level I Curriculum, Volume 3, Module 6.