A cash cow is product or service that generates significant revenue over a long period of time for the company that sells it. They also generate more cash than they consume.[1] Revenue “milked” from cash cows is often used to subsidise less profitable parts of a business.[2]
The term cash cow is a metaphor for a dairy cow used on farms to produce milk, offering a steady stream of income with little maintenance.[3]
Cash cows are products or services that have achieved market leader status, provide positive cash flows and a return on assets (ROA) that exceeds the market growth rate. The idea is that such products produce profits long after the initial investment has been recouped. By generating steady streams of income, cash cows help fund the overall growth of a company, their positive effects spilling over to other business units. 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.
Cash cows can be also used to buy back shares already on the market or increase the dividends paid to shareholders. They usually bring in cash for years, until new technology or shifting market preferences renders them obsolete.
- ^ Jones, Rob (2019). Business Student Book 2. Pearson Education Limited.
- ^ Anon (2023). "cash cow definition". cambridge.org. Cambridge University Press.
- ^ Anon (2023). "Cash Cow". merriam-webster.com. Merriam-Webster.