Question

In a recent annual report, Lexmark, a developer, manufacturer, and supplier of printing and imaging solutions for offices and homes, made the following statement:

“One of the most important metrics for Lexmark is our hardware revenue growth because sales of hardware drive our future sales of supplies, which is the profit engine for Lexmark.”

Would Lexmark’s hardware growth be considered a leading or a lagging indicator? Why?

Answer 1

Lexmarks hardware division growth is leading indicator due to following reasons :

• Firms interdependency on hardware division
• Higher revenues drive higher stock markets and hence higher market Capitalization
• Higher market Capitalization in turn attracts FDI
• Higher FDI leads to higher capital expenditure for subsidiary firms and other divisions.