Why is the cash-flow of "stars" (BCG-matrix) neutral?

Question

In one of the here shown matrices, the cash-flow of stars is said to be neutral. I am wondering why. It is solely because of the amount of investment since the market share and growth are big. Correct?

Answer 1

Hi! This is just an approximation and not an exact science. The cash flow is seen as a result of earnings power and rational investment strategy for each of the quadrants. For Cash Cows and Stars the rationale is as follows:

Cash Cows: Strong relative market share in a mature low growth market --> low investment (outflows) and high earnings (inflows) --> high positive cash flow
Stars: Strong relative market share in a growing market --> high investment (outflows) and high earnings (inflows) --> neutral cash flow (since earnings and investments cancel each other out)

Hope this helps!

Cheers, Sidi