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.