Cash Cow
Entry in progress—B.P.
Wikipedia: Cash cow
In business, a cash cow is a product or a business unit that generates unusually high profit margins: so high that it is responsible for a large amount of a company’s operating profit. This profit far exceeds the amount necessary to maintain the cash cow business, and the excess is used by the business for other purposes.
A firm is said to be acting as a cash cow when its earnings per share (EPS) is equal to its dividends per share (DPS), or in other words, when a firm pays out 100% of its free cash flow (FCF) to its shareholders as dividends at the end of each accounting term. This also implies that the firm is not investing in product improvements (distributing all earnings) and is essentially considering itself not in a growth market. This could be the case if a company sees the future of a product line as bleak as a result of some other technology taking away its market share.
Risks of a cash cow include complacency, with management ignoring the need for change as market forces erode value; and ongoing turf wars between the management in charge of the cash cow and other managers trying to garner support for other products.
That said, every business longs for a cash cow product. The 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.
Origins
“Cash cow” is also used sarcastically by sales & business people to describe a customer or organization that has no control over its spending. Quite often used to describe government departments like: Defense; Foreign Aid; Highways & Social Security, where the spending is out of proportion to the services or goods received.
The expression is a business metaphor rooted in the notion of a dairy cow that can be milked on an ongoing basis with little expense after being acquired.
“Cash cow” is used in a Growth-share matrix to represent one of the four quadrants in the matrix. A “cash cow” product has high market share in a slow-growing market. A corporation would want to have as many “cash cow” products as possible.
Investopedia
Cash Cow
1. A cash cow requires little investment capital and perennially provides positive cash flows, which can be allocated to other divisions within the corporation. These cash generators may also use their money to buy back shares on the market or pay dividends to shareholders.
2. This term is a metaphor for a dairy cow that produces milk over the course of its life and requires little maintenance. A dairy cow is an example of a cash cow, as after the initial capital outlay has been paid off, the animal continues to produce milk for many years to come.
Merriam-Webster Dictionary
Main Entry: cash cow
Function: noun
Date: 1979
1 : a consistently profitable business, property, or product whose profits are used to finance a company’s investments in other areas
2 : one regarded or exploited as a reliable source of money (a singer deemed a cash cow for the record label)
(Oxford English Dictionary)
cash cow colloq., (a sector of) a business which provides a steady cash flow, esp. one considered as an attractive take-over target.
1975 Forbes (N.Y.) 15 Feb. 55/1 For a while, the fire and casualty companies were great *cash cows for their acquirers.
1986 Economist 13 Sept. 75/3 He had called Dairy Farm the company’s ‘cash cow’ and its steady turnover had sustained the group’s cash flow through Hong Kong’s property slump from 1981 to 1983.
17 September 1972, Chicago (IL) Tribune, “The Money Scene: Ex-Minesweeper Skipper Guides Borden Thru Field” by Nick Poulos, pg. D11:
As a result, Marusi told us in an interview, Borden has become a “cash cow” that produces a high return on investment and a high cash flow, ...
Google News Archive
6 February 1973, Eugene (OR) Register-Guard, “Executives Say McCall Plan Threat To Oregon Business,” pg. 3A, col. 6:
Bruce Ward, executive with Gunderson Bros., a large manufacturing firm in Portland, said: “Business is not a cash cow. You cant keep milking it to supply all of the community’s needs.”
Google News Archive
6 February 1973, The Bulletin (Bend, OR), “Business balks at tax reform hikes.” pg. 5, col. 5:
SALEM (UPI)—The House- Revenue Committee was told today that Oregon’s businesses should not be regarded as “a cash cow” that can be “milked to meet all the needs of the community.”