The algebraic hierarchical decomposition of finite state automata can be applied wherever a finite system should be `understood’ using a hierarchical coordinate system. Here we use the holonomy decomposition for characterizing finite automata using derived hierarchical structure. This leads to a characterization according to the existence of different cycles within an automaton. The investigation shows that the problem of determining holonomy groups can be reduced to the examination of the cycle structure of certain derived automata. The results presented here lead to the improvements of the decomposition algorithms bringing closer the possibility of the application of the cascaded decomposition for real-world problems.