Company Life Cycle Definition
Broadly speaking, companies progress through a predictable series of phases called the company life cycle. The life cycle starts with the startup phase, moves into the rapid growth phase, followed by the maturity phase, and finally the last phase is decline. Furthermore, the duration of the individual stages varies widely across industries and differs between individual companies. As a result, the phases differ in terms of characteristics related to profitability and financing needs.
Stages of the Company Life Cycle
The startup phase is the first phase in the company life cycle. Companies in this stage are typically losing money, developing products, and struggling to secure a position in the marketplace.
Then the next phase in the company life cycle is the rapid growth phase. In this phase the company begins to generate profits. This phase is also characterized by rapid expansion and an increased need for and dependence upon outside financing to sustain the rapid growth.
The third phase is maturity. In this phase, growth and expansion is slow. Therefore, the need for outside sources of capital subsides. The company is generating enough profits and cash flows to invest in all available projects.
The final stage is decline. During this phase the company remains profitable but sales decline. The company has more cash than it needs for all available corporate projects.
Company Life Cycle Phases
The following includes the company life cycle phases:
2. Rapid Growth
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Higgins, Robert C. “Analysis for Financial Management”, McGraw-Hill Irwin, New York, NY, 2007.