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Business Strategy and Accounting Basics

Which correctly describes a "cash cow" business in PPM?

  1. ABecause the market grows fast, it needs heavy investment to keep its share, and both the cash it generates and the cash it uses are large
  2. BBecause market growth is slow, it needs little investment, and because its share is high, it generates a lot of cash, which is directed to question marks and stars
  3. CBecause both market growth and share are low, reducing or withdrawing from the business is often considered
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Answer: B. Because market growth is slow, it needs little investment, and because its share is high, it generates a lot of cash, which is directed to question marks and stars

A cash cow is a business with a low market growth rate and a high relative market share. Because the market is mature, little investment is needed in added capacity or promotion, and because its share is high, its costs are also low thanks to economies of scale and the experience curve, so it generates a lot of cash. In PPM, this cash is invested to expand the share of question marks with growth potential and to maintain the share of stars, so that the company renews its portfolio of businesses as a whole.

  • A. This describes a star.
  • B. Correct. It is the source of cash that supports investment in growing businesses.
  • C. This describes a dog.
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