Jethro's Braindump

The Profit Cycle

Because the collective sales of all businesses form the GDP, they reflect the same rate of change as The Economic Cycle. However, not all industries are equally responsive to the economic cycle:


Industrial raw materials and components
it takes more raw materials (e.g. metals, plastic, energy) to expand the GDP
Luxury items
for example, vacations and trips
Big ticket “durable” items
for example, cars

Less responsive:

Everyday necessities
their consumption is less dependent on the status of the economy
Low-demand commodities
for example, clothing
Everyday services
for example, haircuts, transportation

Leverages also affect a company’s profits in response to the economic cycle. This include:

Operating leverage
the ability to scale up and down (increase sales) without increasing costs
Financial leverage
When the company’s capital is sourced via equity or debt and require interest payments, a decline in operating profit can cause the net income to decline more significantly.

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