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

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?

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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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

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

Hi Sidi, thanks, that was what I thought but I wanted to double check! Thank you! — B on Jan 16, 2019