Economic Cycles

To analyse company’s performance it is important to understand that economy lives in cycles. Dependening on the cycle state the same performance for the same company can be analyzed differently.

This picture depicts the economic cycle for the whole economy.

It consists of:

1. Expansion - the phase of cycle when most companies grow, economy expands and everything goes smooth.
2. Business Peak - the highest point that economy is able to reach in one cycle.
3. Contraction (Recession) - the phase of cycle when most companies shrinkg, economy contracts, unmployment rate rises, as well as inflation.
4. Recessionary Trough (Depression) - the lowest point that the company reaches in one cycle. After this point the cycles goes all over.

During expansion the most interesting companies for us are The Growth Companies - the companies that promise high returns in the future.

During contraction the most interesting companies for us are The Value Companies - the companies that have a stable source on income.