ACCA Strategic Business Leader (SBL) Practice Exam

What kind of businesses does a "cash cow" usually represent?

1. Emerging startups needing high investment

2. Established segments with steady cash flow

3. Products in their introductory phase

4. Innovative businesses focused on rapid growth

The correct answer is: Established segments with steady cash flow

A "cash cow" typically represents established segments with steady cash flow, which are often characterized by low investment needs while generating consistent profits. These businesses usually have a strong market presence and operate in mature industries. The revenues they generate exceed the costs required to maintain them, allowing the company to use the excess cash to either invest in other areas or distribute it to shareholders. In contrast, the other options describe different types of business scenarios. Emerging startups, for instance, generally require substantial investment to establish themselves and may not yet generate steady cash flows. Products in their introductory phase often face high costs and uncertainty regarding market acceptance, making them less predictable. Finally, innovative businesses focused on rapid growth are typically in their investment phase, prioritizing reinvestment into the business rather than generating excess cash. Thus, the notion of a "cash cow" aligns with businesses that are well-established and can provide a reliable stream of income, highlighting their role in supporting overall financial stability within an organization.