Angie · learn
Business cycle
The repeating pattern of expansion, peak, contraction and trough. It is why a cyclical company's best year is a poor guide to its future.
Updated 2026-09-05
The business cycle is the repeating pattern of expansion, peak, contraction and trough that economies move through. It has no fixed length and it is only dated confidently in hindsight.
It matters directly to valuation because it determines whether a given year is representative. A cyclical company's best year is the top of a cycle, not a run-rate, and projecting perpetual growth from it is a category error. This is precisely why Angie assigns an exit fcf multiple rather than Gordon growth to energy, materials and consumer cyclicals. See terminal method.
See also
- Recession — A meaningful, broad decline in economic activity lasting more than a few months. Dated formally after the fact, which is of limited use while you are in one.
- GDP — Everything produced inside a country's borders. Its long-run growth rate is the ceiling on what any company can sustainably grow at forever.
- Terminal method — How value beyond the horizon is set: Gordon growth, which assumes cash flow grows forever at a fixed rate, or a multiple applied to the final year.
- Exit FCF multiple — The multiple applied to terminal-year free cash flow when the exit-multiple method is used instead of Gordon growth.
Educational content, not investment advice. Angie explains how a valuation is built so you can judge it yourself. What you do with that is your call.
