Genetree Labs: Industrial Life Cycle Stage and Shareholder Earnings Payout

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The industry life cycle is divided into five distinct stages. Specifically, the industrial life cycle progresses from the development stage to an accelerating growth stage to a mature growth stage to a market maturation and stabilization stage. Finally, the fifth stage of the industrial life cycle is characterized by decelerating growth and sales decline. During the mature growth stage, sales are still growing, albeitslowly. During the last stage of the industrial life cycle, however, is characterizes by a decline in annual sales.

As an industry or company progresses through the industrial life cycle, sales begin to grow rapidly (accelerating growth) then slow considerably as the product or service begins to reach critical mass (mature growth). During the mature growth stage, the industry or company grows at a slower pace, until eventually growth begins to slow considerably (market maturity and stabilization) as the market for the industry or company's products becomes more completely defined. An industry or company typically reaches the fifth stage of the industrial life cycle, growth deceleration and decline, only after many years of stabilization.

The firm profiled in this example is in the pioneering and development stage, as evidenced by the Company's complete lack of sales or product line. Genetree

Labs is in the process of developing a product, and is exclusively a R&D firm. So said, this Company is an example of the pioneering and development stage of the industrial life cycle. Shareholders of Genetree will likely expect a low dividend payout ratio, giving up current income for the prospect of future earnings growth, i.e. shareholders will prefer that earnings are "plowed back" into the operation of Genetree rather than be distributed as dividends. This is augmented by the fact that firms in the pioneering and development stage are likely to have superior investment opportunities, which leads directly to a lower payout ratio.

If you chose "accelerating growth," remember that the firm profiled in this example has no sales or existing product. Genetree Labs is in the development stage.