Get Active in Our Amazing Community of Over 450,000 Peers!

Schedule mock interviews on the Meeting Board, join the latest community discussions in our Consulting Q&A and find like-minded Case Partners to connect and practice with!

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

BCG Matrix growth matrix
Recent activity on Jan 16, 2019
1 Answer
2.7 k Views
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?

Overview of answers

Upvotes
  • Upvotes
  • Date ascending
  • Date descending
Best answer
Sidi
Expert
replied on Jan 16, 2019
McKinsey Senior EM & BCG Consultant | Interviewer at McK & BCG for 7 years | Coached 350+ 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

Was this answer helpful?
B on Jan 16, 2019

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

How likely are you to recommend us to a friend or fellow student?
0
1
2
3
4
5
6
7
8
9
10
0 = Not likely
10 = Very likely