Cash cow refers to companies that have significant market share in a low-growth industry or sector. In other words, they generate a lot of cash in an industry that doesn’t have much need for cash. Since the business unit can maintain profits with little maintenance or investment, a cash cow can also be used to describe a profitable but complacent company or business unit. Companies love cash cows, because of their income-generating qualities.

  • The roof tile division manufactures and sells 70% of its products in the European Union and the USA.
  • A cash cow is also a reference to a business, product, or asset that, once acquired and paid off, will produce consistent cash flows over its lifespan.
  • It may get harder to retain your market share without aggressive discounting.
  • Furthermore, companies can use them as leverage for future expansions, as lenders are more willing to lend money knowing that the debt will be serviced.
  • A dominant player in the printer market is HP or the Hewlett-Packard company.
  • The Government put relatively little money back into it.

Thus, it is no doubt that the printing division has been HP’s greatest profit generator over the years, making it the company’s cash cow. Today, Windows accounts for only a small part of Microsoft’s business, while it generates a steady revenue for the company. The profit generated by these offerings is more than what is required to maintain the business. Hence, these profits are used to finance other activities carried out by the firm.

Meaning of cash cow in English

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. 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. Market share is the percentage of the total market being serviced by the company.

It is a risk because small competitors may try to capture greater market share and eat into yours. Coca-Cola is a globally recognized beverage that has become a cash cow example due to its successful establishment as a strong brand for itself throughout its history. For the following reasons, Coca-Cola is an absolute cash cow.

To attract fresh customers or maintain existing ones, one must constantly develop and improve the cash cow product. Consumer satisfaction requires adding novel features, expanding product lines, or introducing supplementary services. 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 make so much money because they have a lot of customers and a small amount of competition. 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. The BCG Matrix has its own limitations, since it’s a very simple tool using only two dimensions—market share and market growth.

  • Strategic partnerships and collaborations with complementary businesses to create additional value and revenue sources can help solidify the cash cow position of a company.
  • Companies may use the money from the cash cow to develop new products or to acquire other businesses.
  • There is no large investment requirement, and they don’t generate large cash flows.
  • The aforementioned products have made a mark on their respective industries, and hence hold a big chunk of the market share in these industries.
  • These companies’ strong market share bring in strong revenues every year.

The phrase is applied to a business that is also similarly low-maintenance. Modern-day cash cows require little investment capital and perennially provide positive cash flows, which can be allocated to other divisions within a corporation. Question Marks – Question marks grow rapidly, and thus consume a large amount of cash, but don’t generate as much cash due to their low market share. As their name suggests, they are very tricky and leave us wondering what future course they might take. These products need to be constantly examined and reconsidered to decide whether they are worth the investment they demand.

Share

Companies may use the money from the cash cow to develop new products or to acquire other businesses. The Cash Cow Matrix is a Boston Consulting Group (BCG) Growth-Share Matrix. This strategic management tool helps companies understand which products or services are making a lot of money and have high market growth and market share. The BCG matrix is a tool to evaluate the products of a company, and thereby help to decide where the company’s resources can best be allocated to maximize profits in the future. It divides products into four categories based on their market share and market growth. A cash cow is a business division or product with a significant market share in a mature market that guarantees substantially high returns on investment.

Market Share And Market Growth

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. Click on a spelling suggestion below or try again using the search bar above. Cash cow may also refer to a company that is milked until it is dry. Feedough is the one-stop resource for everything related to startups. Our philosophy is to research, curate, and provide the best startup feeds and resources to help you succeed in your venture.

Real-World Cash Cow Examples

In this video, Jim Glover looks at the Boston Consulting Group’s growth-share matrix and how this influences resource allocations. For example, the Mexican government drew the income from its state oil & gas company PEMEX. The Government put relatively little money back into it. HP’s printing division has dominated the market for about 20 years.

When the total market demand grows to 150, your sales will also grow to 45, simply by maintaining your market share at 30%. The aforementioned products have made a mark on their respective industries, and hence hold a big chunk of the market share in these industries. It can, therefore, be deduced that these products are cash cows for Apple Inc. Small investors love cash cow companies because they can finance their own growth and value. Coke is the perfect example of a cash cow because it generates abnormal profit in a mature market. The cash cow generates more money than the amount needed to maintain the business.

They can ‘milk’ the cash cows with the minimum of investment because investment would be a waste of money. It would be a waste of money because it is a slow-growth industry. A cash cow is a profitable product or business that brings in a steady flow how does professional debt settlement work of income. It may also refer to a business venture that generates more profit than it cost to acquire or create. However, some firms, especially large corporations, realize that businesses/products within their portfolio lie between two categories.

Cash Cow Meaning

They usually bring in cash for years, until new technology or shifting market preferences renders them obsolete. Above all, these companies can do this without undermining profitability. They do not even have to ask shareholders for additional capital. The expression refers to the idea that something produces ‘milk,’ i.e., profit, long after we have recovered the cost of investment. We spend a lot of time researching and writing our articles and strive to provide accurate, up-to-date content. However, our research is meant to aid your own, and we are not acting as licensed professionals.

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 contrast to a cash cow, a star, in the BCG matrix, is a company or business unit that realizes a high market share in high-growth markets. Stars require large capital outlays but can generate significant cash. If a successful strategy is adopted, stars can morph into cash cows. Lastly, dogs are the business units with low market shares in low-growth markets.