Cash Cow: Definition, Investment Type, and Examples

Suppose you have a business that keeps generating a good amount of profits from the day it starts till you close it down. Also, it took significantly less money to purchase or open this business. In the business world, we use the term “Cash Cow” to explain this type of business. To show the importance of this, let me share an example. A software company had a certain software application that was widely adopted.

  • Government departments can take up to 20 days to respond to the request and can reject it if they believe it will cost too much or take too much time to find the figure.
  • The model was the BCG matrix, and firms still use it to planning long-term product strategies.
  • The Boston Consulting Group’s growth-share matrix classified businesses into four types.

Market share refers to the percentage of the total market your company’s sales represent. Bruce D. Henderson created the growth-share BCG-Matrix for the Boston Consulting Group in 1970. In the Matrix, a cash cow is a company with high market share in a slow-growing industry. By expanding into new geographical regions and targeting new customer segments, the company can increase a product’s usage among customers. It will further cement the cash cow’s market position and build success in untapped markets. They make so much money because they have a lot of customers and a small amount of competition.

Frequently Asked Questions

It became their cash cow, generating lots of revenue annually. This can be used to reinvest, expand, reduce debt, or pay out profits. Grasping their importance is crucial for long-term success. It defines an entity that creates constant and hefty cash flow. This requires little investment, and the returns are high.

Its return on assets is far greater than its market growth rate; as a result, Apple can invest the excess cash generated by the iPhone into other projects or products. In the BCG Matrix, a cash cow represents a product or business with high market share but low market growth, generating steady cash flow. On the other hand, a star represents a product or business with high market share and high market growth potential, requiring significant investment for future growth. Characteristics of a cash cow include a large market share, low investment requirements, low competition, and strong brand loyalty. These factors contribute to the ability of the business or product to generate substantial cash flow. The origin of the term “cash cow” comes from the 1970s.

Frequently Asked Questions (FAQs)

This allowed them to invest in other projects, and also improved their reputation. These strategies keep cash-making products/services going while ensuring growth and profits. Maintaining a Cash Cow efficiently needs strategies that boost profits and sustain dominance.

The Apple products bring in most of Apple’s overall revenue. The iPhone accounts for 61.65% of its revenue, while the iPad and iMacs account for 8.39% and 11.27% of Apple’s total revenue respectively. Thus, by this means, a cash cow enables a firm to flourish, making it an essential element to the firm.

The term cash cow is also used to describe a division or segment of a company that consistently generates substantial amounts of excess cash. A dominant player in the printer market is HP or the Hewlett-Packard company. This company owns 42% of the global market share and has been ruling this market for over 20 years. The printing division alone earned the company a revenue of 17.64 billion U.S. dollars in 2020, making it one of its most important business segments.

The expression refers to the idea that something produces ‘milk,’ i.e., profit, long after we have recovered the cost of investment. Most remained tight lipped as they walked through Downing Street, but immigration minister Robert Jenrick offered an insight into his day. Government departments can take up to 20 days to respond to the request and can reject it if they believe it will cost too much or take too much time to find the figure. Remember, these hotels are paid from the public purse – apparently at a cost of £8m a day – so you are entitled to know. As we have been reporting this morning, Sky News understands there will be an announcement later about the use of hotels to house asylum seekers in the UK.

Meaning of cash cow in English

The model was the BCG matrix, and firms still use it to planning long-term product strategies. It brings in a lot of money for Travelers Gateway and does not cost much, making “Swiss Village Tours” a cash cow for the company. They refer to businesses or products that bring in consistent profits. Little investment or effort is needed to keep them successful. It’s important to recognize these areas of a business, so resources can be used strategically. Despite a saturated market and competition, they keep making money.

Today, Windows accounts for only a small part of Microsoft’s business, while it generates a steady revenue for the company. For example, Kellogg’s Corn Flakes has found for itself a centre spot in the cereal industry, making it the market leader of a mature market. The money generated from this division is high enough to support other innovations by the company. However, some firms, especially large corporations, realize that businesses/products within their portfolio lie between two categories. This is especially true with product lines at different points in the product life-cycle. Cash cows and stars tend to complement each other, whereas dogs and question marks use resources less efficiently.

Cash Cow

They have plenty of cash left over after meeting their necessary annual expenses. Imagine company ZYX International has four divisions. The roof tile division manufactures and sells 70% of its products in the European Union and the USA.

Printing division of HP

With a cash cow, you can make a lot of money without spending much and use that money to invest in other businesses that need more attention. Yes, a cash cow can decline or become obsolete over time due to changing market conditions, innovation by competitors, or shifts in consumer preferences. It is important to regularly assess and basic accounting principles & concepts for t adapt the business strategy to sustain the cash cow status. In conclusion, cash cows are essential to maintain financial stability. By capitalizing on these profitable entities, companies build a strong foundation for the future. The concept of cash cows was first propagated by a model developed by the Boston Consulting Group.

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