Notes From Damodaran's Corporate Life Cycle Thesis 18Aug2025

Notes From Damodaran's Corporate Life Cycle Thesis 18Aug2025

 

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(The views expressed here are for information purposes only and should not be construed as a recommendation or investment advice. While the author is a CFA Charterholder with nearly 25 years of experience in financial markets, this content is intended to share general insights and does not constitute financial guidance. Please consult your financial adviser before taking any investment decision. Safe to assume the author has a vested interest in stocks / investments discussed if any.)

 

 

 

The following are notes and charts from a blog written by Professor Aswath Damodaran, dean of valuation. 

 

His blog: Musings on Markets: The Corporate Life Cycle: Managing, Valuation and Investing Implications! 19Aug2024

 

His video 19Aug2024 on the same subject is here.  

 

His book on the same subject: The Corporate Life Cycle: Business, Investment, and Management Implications 

 

His Corporate Lifecycle Online Class is here.  

 

According to Aswath Damodaran, the corporate life cycle (CLC) is a conceptual framework that describes how companies evolve over time, from inception to decline and how their characteristics, risk profiles, funding needs, investment strategies and valuation approaches change at each stage.

Damodaran’s Definition of the Corporate Life Cycle:

“Just like living organisms, companies are born, grow, mature, age and eventually decline. At each stage, they face different challenges, require different management strategies and need to be valued differently.” 

 

Damodaran’s Six Stages of the Corporate Life Cycle:

1. Start-up
2. Young growth
3. High growth
4. Mature growth
5. Mature stable
6. Decline 

 

All companies can be both valued and priced, but the absence of history and high uncertainty about the future that characterizes young companies makes it more likely that pricing will dominate valuation more decisively than it does with more mature firms.  

 

Core Insights from Prof Damodaran:

A company’s value drivers, risk profile and financial strategies should match its life cycle stage.

Many firms (and investors) go wrong by mismatching valuation techniques or strategic choices with the company’s actual life cycle stage.

Narratives about companies must be grounded in numbers and vice versa—especially as a company moves through the life cycle. 

 

Damodaran teaches three classes on:

 

1. Corporate finance

2. Valuation

3. Investing

 

The business life cycle has become an integral part of all the three classes taught by Prof Damodaran. 

 

In corporate finance, all decisions that a business makes can be categorised into:

 

1. Investing (deciding what assets/projects to invest in), 

 

2. Financing (choosing a mix of debt and equity, as well as debt type), and 

 

3. Dividend decisions (determining how much, if any, cash to return to owners and in what form). 

 

 

 

Some charts I liked from the above video:

 

1. The corporate life cycle:

 

 

2. Corporate Life Cycle Determinants:

 

 

3. Measuring Corporate Age:

 

 

4. Valuation Across the Life Cycle:

 

5. Corporate Finance: Across the Life Cycle:

 

 

6. Ageing in Dog Years?

 

 

7. Investing Across the Life Cycle:

 

 

8. Pricing Across the Life Cycle:

 

 

 

9. Managing Across the Life Cycle:

 

10. Ageing Gracefully? The Choices:

 

 Complement the above book, video and or blog by Prof Damodaran with a study on "Trading Stage in the Company Life Cycle" by Michael Mauboussin and Dan Callahan.

 

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