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

BCG Matrix growth matrix
Recent activity on Jan 16, 2019
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B
Skilled
asked on Jan 16, 2019

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?

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Sidi
Expert
replied on Jan 16, 2019
McKinsey Senior EM & BCG Consultant | Interviewer at McK & BCG for 7 years | Coached 300+ candidates secure MBB offers

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

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B on Jan 16, 2019

Hi Sidi, thanks, that was what I thought but I wanted to double check! Thank you!

Sidi gave the best answer

Sidi

McKinsey Senior EM & BCG Consultant | Interviewer at McK & BCG for 7 years | Coached 300+ candidates secure MBB offers
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