What is 'Decline'

A decline is a situation in which a security's price decreases in value over a given trading day and subsequently closes at a lower value than its opening price. A decline can happen for several reasons, including a reduction in the firm's intrinsic value or as a result of the security's price dropping below its support level.

BREAKING DOWN 'Decline'

In addition to decline, investors and analysts use other synonymous terms, such as reduction, decrease, downturn, downswing, downtrend, devaluation, depreciation, diminution, ebb, drop, and slump to describe negative growth or a negative growth trend. The decline is generally in share price, revenues, expenses, earnings, earnings per share, assets, liabilities, shareholder's equity, and cash flow, and is calculated using the growth rate formula, which is the product of the final value less the starting value divided by the starting value multiplied by 100. If positive, there's an increase in growth. If negative, there's a decline in growth.

Example

If a company has sales totaling $100,000 in year 1 and sales totaling $150,000 in year 2, the growth rate is 50% (($150,000-$100,000/$100,000) x 100). In this example, it is evident that sales increased, which would equate to increased growth.  If sales decreased in year 2 by $50,000, the growth rate would be -50% indicating a decline in growth (($50,000-$100,000/$100,000) x 100).

How Decline Is Used

In general, analysts look at a decline as being indicative of poor performance. However, a decline in some financial statement line items can be a sign of strength. For example, a decline in expenses may signal improved business efficiency. A decline in debts may be indicative of increased cash flows or improved earnings. A decline in taxes carries different interpretations depending on the studied target.  For some, it is a sign of improved management, but for others, it is a sign of poor corporate responsibility. However, most agree that a decline in earnings is unfavorable. Just as with any measurement, the interpretation can vary.  Alone, a decline does not give the full picture of an organization's health and operational efficiency.  Used with other measurements, it is a useful tool for analysis.

RELATED TERMS
  1. Negative Growth

    Negative growth is a contraction in a country's economy as evidenced ...
  2. Declining Industry

    A declining industry is an industry where growth is either negative ...
  3. Full Value

    An asset is said to have reached full value when its intrinsic ...
  4. Growth Rates

    Growth rates are the percentage change of a variable within a ...
  5. Market Value

    Market value is the price an asset would get in the marketplace. ...
  6. Market Value Of Equity

    Market value of equity is the total dollar value of a company's ...
Related Articles
  1. Investing

    What Is The Intrinsic Value Of A Stock?

    Intrinsic value reduces the subjective perception of a stock's value by analyzing its fundamentals.
  2. Investing

    What Is The Intrinsic Value Of A Stock?

    Intrinsic value can be subjective and difficult to estimate. It’s a perception of a security’s value that factors tangible and intangible factors.
  3. Investing

    Value or Growth Stocks: Which Are Better?

    The answer to the age-old debate about growth versus value stocks depends on a number of factors.
  4. Trading

    3 Key Signs Of A Market Top

    Learn the best ways to foresee market corrections and how to profit from them.
  5. Investing

    Corporate Cash Flow: Understanding the Essentials

    Tune out the accounting noise and see whether a company is generating the stuff it needs to sustain itself. Learn how to read the cash flow statement.
  6. Investing

    Target Stock Declines Ahead of Q1 Earnings (TGT)

    Wall Street expects the retailer to deliver year-over-year increase in earnings per share, while revenue is projected to fall.
  7. Investing

    Dollar Poised for 13% Drop That Could Boost Stocks

    Should the dollar weaken it should not be viewed as a negative, but a positive.
RELATED FAQS
  1. How should I evaluate a company with negative cash flow investing activities?

    Negative cash flow from investing activities should be evaluated since it could be a warning sign. However, it can also mean ... Read Answer >>
  2. What can cause a negative terminal growth rate?

    Learn about the assumptions built into terminal valuations and in what circumstances the applied terminal growth rate might ... Read Answer >>
  3. What is the difference between market capitalization and equity?

    Understand the difference between market capitalization and equity, two primary measurements used to evaluate the worth of ... Read Answer >>
  4. What do you do if the intrinsic value of a stock is significantly lower than the ...

    Discover how the intrinsic value and market price of a stock are related and why a stock that appears overvalued may still ... Read Answer >>
Trading Center