ACCA Strategic Business Leader (SBL) Practice Exam

In the BCG matrix, what does a "cash cow" represent?

1. High growth product needing heavy investment

2. Low growth product with high market share

3. Low market share product in a declining market

4. New product in a competitive market

The correct answer is: Low growth product with high market share

In the context of the BCG matrix, a "cash cow" is characterized as a low growth product that maintains a high market share. This positioning indicates that the product generates more cash than it consumes, allowing the company to utilize this excess cash flow to support other areas of the business, such as investing in more promising products or funding development for new initiatives. The underlying principle is that cash cows have established their presence in the market, benefiting from economies of scale and loyal customer bases. Their low growth indicates that while they are not expected to expand significantly, they continue to provide steady revenue, making them important for sustaining overall company profitability. Understanding what constitutes a cash cow is valuable for strategic planning, as it informs management decisions regarding resource allocation, investment in emerging products, and long-term growth strategies. This insight can guide companies to maximize their return on investment by leveraging the wealth generated from cash cows effectively. The other choices do not align with the characteristics of a cash cow: high growth products needing heavy investment are typically classified as stars; low market share products in a declining market are known as dogs; and new products in a competitive market might represent question marks or problem children, depending on their market positioning and potential for growth.