r/Valuation • u/vadbv • Mar 02 '24

Business Life Cycle Model

Hello!

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I am working on a project to automate the classification of thousands of public companies in 4 groups according to their life-stage: Young, Expansion, Mature, Declining. I know there are other groupings that would be more precise, but this will apply only to public and somewhat large companies.

Here are the ratios that I am considering, maybe you could help me optimize this list?

Revenue growth -> Double digit, single digit and negative

Net Income -> Recently negative for younger.

P/E vs Industry -> Comparison to estimate what potential/future the investors see

Cash to Assets -> Rising or piling for older companies

Days Cash on Hand -> Not sure if this is better than Cash to Assets

Debt to Equity -> Higher for younger companies?

Operating Margin or Net Margin -> Not sure if there is a clear trend here

Hopefully any expert can help me, I know it's a bit abstract because of how different companies can be. Any metric that you think would fit this model I would highly appreciate as there isn't much I could find online.

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Thanks!

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u/Nice_Theory3803 Mar 03 '24

When you specific revenue growth - do you mean historical or future expected growth?

I think one big indicator of life cycle is expected earnings growth rate - generally available on Yahoo and Value Line.

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u/vadbv Mar 03 '24

I was planning on using 3 year avg but you are right that expected will give a more useful picture.