Financial Modelling Find i d more on CoachingAssembly.com hi bl IV/- MODELLING REVENUE TRENDS
There are three main types of revenue patterns, or trends, to look for: seasonal, cyclical, and secular. When modelling business performance, it is critical to make sure that your assumptions coincide with the economic reality of the company you are modelling.
SEASONAL TRENDS
A seasonal business is one with revenue patterns that increase and decrease with a regular pattern during specific periods of the year. Examples: A flower shop will likely see a huge increase in sales in the days leading up to Valentine’ss Day and Mother’s Valentine Mother s Day. Day Retail companies tend to have strong sales performance around the end of the year (before X-mas) and during Sales periods.
CYCLICAL TRENDS
A cyclical business is similar to a seasonal business, in that business tends to be strong in certain periods but weaker in others. For cyclical businesses, however, the trend usually lasts for a time period longer than one year (sometimes as long as a decade), and is generally unrelated to the calendar. Cyclical companies often have long periods of sustained growth followed by a sharp drop off when the cycle changes.
SECULAR TRENDS
A secular trend typically lasts longer than a cyclical trend. It typically involves the advent of a new technology gy or consumer behaviour that is here for g good,, or at least for a long g time. The reserve is also true: some business are involved in secular declines due to technological obsolescence, or shifts away from them in consumer behaviour.
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