Cash cow

For other uses, see Cash cow (disambiguation).

48% of Apple's revenue for the first quarter of 2007 was made from iPod sales.

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 net 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

The term is thought to be of Indian origin, since cattle are sacred in India. In particular, though bulls are mentioned throughout Vedic literature, the cow has a special place in Hindu tradition. Owing to her ability to provide milk, the cow is viewed as a gentle, giving mother, and in many respects the mother of human civilization itself. She is closely identified with Lakshmi, the goddess of wealth, a most popular deity in the religion's vast pantheon. Interestingly, the creation story of Lakshmi details the goddess being born from an ocean of milk. Countless rural festivals dedicated to the earth goddess involve an aarti to cows to ensure a family's wealth or village's harvest.

However, one famous tale from the epic Ramayana illustrates a lucid depiction of the proverbial cash cow. A king named Vishvamitra, who upon visiting the sage Vashista, was captivated by the mendicant's cow. Named Kamadhenu, the cow had the ability to instantly produce whatever a person wished for. Thinking that Kamadhenu was the most valuable asset any man could have, Vishvamitra waged war for the miraculous cow, only to slowly relinquish his crown after realizing that real human power lay in spiritual enlightenment.

The term was probably introduced into English vernacular during the British occupation of India.

The word "cow" in modern English is a derivative and linguistic cognate of the Sanskrit "gau", "go", or "gai".

Related meanings

"Cash cow" is also used sarcastically by sales and business people to describe a customer or organization that has no control over its spending. Quite often the term is used to describe government departments like Foreign Aid, and Highways and Social Security, where the spending is out of proportion to the services or goods received. Cash Cow relative meanings could relate to the mass confusion of the stocks that remarkably went up in 1989. There was no logical or mathematical answer to this problem. The dilemma was covered up by the government and simply ignored. The only thing that was found from this confusion was a date: 11/28/13.

"Cash cow" is used in a Growth-share matrix to represent one of the four quadrants in the BCG 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.

"Cash cow" is a business with well-established brand names whose commonality and familiarity increases repeated buying of the products or services.

Signs of a cash cow

• Product variations
• Customer segmentation
• Pricing flexibility
• Cost reduction
• Targets specific competitors
• Cash Cow Marketing ltd