Canadian Securities Course (CSC) Level 2 Practice Exam

Which type of industries have a large start, negative cash flows, and are unprofitable at first?

1. Mature Industries

2. Growth Industries

3. Declining Industries

4. Emerging Growth Industries

The correct answer is: Emerging Growth Industries

Emerging growth industries are characterized by significant initial investments, leading to larger start-up costs and negative cash flows as they develop their market presence and scale operations. In these industries, companies often prioritize growth and market share over immediate profitability, which can result in unprofitable performance in the early stages. This phase usually involves high research and development expenses, marketing, and infrastructure costs, reflecting the optimism surrounding future potential rather than current financial performance. Mature industries, on the other hand, typically exhibit stable cash flows and profitability, as they have already established their market position. Growth industries may experience positive cash flows as they expand, while declining industries face reduced demand and profitability challenges. Therefore, the distinct combination of substantial initial investment and the expectation of growth in emerging growth industries is what makes them a correct choice for this scenario.