Steady State

Life Cycle S Curve Model

Ahmed Shahzad, PhD Scholar 1

Introduction to Steady State
A ‘ life cycle ’ model which demonstrates that
products move from launch to growth to a mature and
ultimately to a decline phase.
It shows that at the launch stage the company ’ s sales,
profitability, and cash generation are all in its future;
as the product matures, some of this potential is
realized, and so the growth prospects decline.

Ahmed Shahzad, PhD Scholar 2

Definition of Steady State
In steady state a company has a growth rate of zero.
It must be emphasized that steady state is a
theoretical state;
the model is developed in order to build up an
argument – in practice there is no such animal as a
company in steady state, as even mature companies
always have an element of growth or decline.)

Ahmed Shahzad, PhD Scholar 3

Assumptions of Steady State Firms
Annual depreciation expense would have to be
reinvested in the business; if this were done the
business would be capable of producing the same
physical level of output over time.
Second, all of the constant real profit achieved after
charging this replacement cost depreciation must be
paid out as dividends.

Ahmed Shahzad, PhD Scholar 4

Valuation of Steady State Company
Discuss Working Insight 2.2 Page no 47

Practice Example 2.3 Page no -48

Ahmed Shahzad, PhD Scholar 5