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Cash cow business

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A Cash cow is a business (usually used when refering to a SBU - Strategic Business Unit of a larger corporation) that produces consistent cash flow over its lifespan. It requires little capital investment and generates cash surpluses over what is needed to sustain its present market position. It has a strong, sustainable market share and high profit margins which usually form its competitive advantage in the industry that the SBU belongs to. Therefore a corporation with cash cows SBUs can use those surpluses to fund the cash hog business - SBUs of the company. In addition, a cash cow can often be a tempting takeover target since it is a valuable resource fit for companies that require strong financial and strategic resources.

Such businesses are valuable because surplus cash can be used to:

  • Pay Dividends
  • Finance new acquisitions
  • Invest in promising cash cash hogs

Strategic objectives of a cash cow SBU:

  • Fortify and defend present market position
  • Keep the business healthy

BCG growth-share matrix developed by the Boston Consulting Group, still used by analysts in large companies, uses the term "cash cow" to describe business units experiencing high market share and low market growth.

The term Cash Cow is a metaphor for a dairy cow that produces milk over the course of its life and requires little maintenance.

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