Permanent excise taxes inculcated the English to the practice of taxing all citizens; soon this matured into the conviction that all should contribute towards the support of the government. The poor ought to pay taxes to the best of their ability as part of their duty to society. John Locke, the political theorist intimately connected with the Glorious Revolution, whose writings served as the basis for the Declaration of Independence, strongly supported this idea. ‘Governments cannot be supported without great charge and it is fi t everyone who enjoys his share of protection should pay out of his estate his proportion for the maintenance of it’. Th e contract between government and its citizens, he believed, included an obligation on the part of each constituent for the maintenance of the state. Th is in turn meant that governments could ‘not [to] raise taxes on the property of the people without the consent of the people’. A century later Adam Smith would echo this sentiment; his first ‘maxim of taxation’ declared, ‘Th e subjects of every state ought to contribute towards the support of the government, as nearly as possible, in proportion to their respective abilities’

The analysis of an industry’s life cycle is useful for making projections about profit margins, earnings growth, trends in sales and profitability. To simplify things it is quite common to reduce the entire life cycle of an industry to 5 stages Such a 5-stage model is described by Reilly and Brown (2003). Abrief description of the different stages will follow next.

Pioneering development: A modest sales growth is accompanied by small or negative profit margins and profits. The firms face high R&D costs. Most recent examples are high-tech companies or internet-based companies with unproven business models. Most of the financing is obtained through venture capital or private equity.

Rapid accelerating growth: Demand for products and services grows and due to only few competitors, profit margins are high. Firms experience substantial backlogs and production capacity is being built up. At this stage successful companies will be able to access the capital markets for further financing.

Mature growth: An increasing number of competitors enter the market. The demand for the industry’s goods and services is satisfied, prices decline and profit margins begin to decline. At this stage financial discipline is important because future earnings might be lower due to competition. Companies with sustainable debt levels will benefit in the long run.

Stabilization and market maturity: The growth rate of the industry declines to the growth rate of the aggregate economy and profit growth will vary by industry due to different competitive structures. Competition will result in lower profit margins. In this stage industry trends will contribute to the development of aggregate credit quality.

Deceleration of growth and decline: Sales growth declines because of changes in demand and new substitutes. An increasing number of companies start to generate losses. The industry experiences a negative credit trend.