Industry

A classification that refers to a group of companies that are related in terms of their primary business activities. In modern economies, there are dozens of different industry classifications, which are typically grouped into larger categories called sectors.

Individual companies are generally classified into industries based on their largest sources of revenue. For example, an automobile manufacturer might have a small financing division that contributes 10% to overall revenues, but the company will still be universally classified as an auto maker for attribution purposes.

Industries are often studied by investors and economists to better understand the factors and limitations to corporate profit growth. Companies operating in the same industry can also be compared to each other to evaluate the relative attractiveness of a company within that industry. Stocks within the same industry often rise and fall as a group because the same overlying factors exist for all members.

The North American Industry Classification System (NAICS) (developed by the United States, Canada and Mexico) is widely used by investors to classify companies. In the NAICS hierarchy, companies that use similar production processes are categorized in the same industry.