2. Approaches to Identifying Similar Companies

b. compare methods by which companies can be grouped, current industry classification systems, and classify a company, given a description of its activities and the classification system;

## c. explain the factors that affect the sensitivity of a company to the business cycle and the uses and limitations of industry and company descriptors such as “growth,” “defensive,” and “cyclical”; ## d. explain how a company’s industry classification can be used to identify a potential “peer group” for equity valuation;

What are the three main approaches to classifying and identifying similar companies? 1. Products and/or service supplied 2. Business-cycle sensitivities 3. Statistical similarities

What is a defensive (or stable) industry? A defensive (or stable) industry demonstrates stable performance during both economic expansion and contraction.