What is a cyclical company?

A cyclical company is a business whose success is determined by the economy. Economic activity follows a cycle of fluctuations, known as the business cycle, and the share price of a cyclical company is closely linked to this. During an economic boom, cyclical companies will thrive, but during a recession they will be hit the hardest.

What is non cyclical industry?

An organization that produces essentials or are unaffected by economic state of their markets is referred to as non cyclical industry. Cyclical industries however, plan extensively to ensure they survive economic downturns.

What is a cyclical stock?

Our opinions are always our own. A cyclical stock is a stock whose performance follows the overall economy, rising when it grows and dropping during declines. Cyclical stocks typically belong to industries dependent on discretionary spending like travel, entertainment, and luxury retail.

How do you know if an industry is cyclical?

To determine whether an industry is cyclical or not, without diving into the financial statements of a company, a key starting point would be to understand consumer purchasing behaviors. An industry is likely to be cyclical if consumers materially limit the amount of goods and services purchased from that industry during an economic downturn.