Cash flow + BCG model analysis Flashcards
BCG matrix is a framework
Stars: High growth, high market share. Require heavy investment to sustain growth.
Cash Cows: Low growth, high market share. Generate significant steady cash.
Question Marks: High growth, low market share. Require cash to capture more market share.
Dogs: Low growth, low market share. Generally, they break even or have minimal cash generation.
Identify the Category
Determine which BCG category the company or its divisions fall into based on available strategic market data.
Analyze Operating Activities:
Stars and Question Marks will typically show high cash outflows related to operational growth strategies (e.g., increasing production capacity, marketing expenditures).
Cash Cows should exhibit strong positive cash flows from operations, indicating efficient capital utilization and mature market positions.
Dogs may show minimal or negative cash flows if they are not strategically managed for cost control.
Review Investing Activities:
Stars and Question Marks likely have high outflows for capital expenditures as they expand. Positive inflows might indicate strategic divestments to focus on core activities.
Cash Cows might show lower capital expenditure, focusing more on maintaining current operations rather than expansion.
Dogs should ideally have minimal capital investments unless a turnaround strategy is being implemented.
Examine Financing Activities:
Stars may show inflows from issuing new equity or debt to finance growth.
Cash Cows could be sources for dividend payouts or to finance other segments like Stars or Question Marks.
Dogs may show restructuring of finances, such as debt refinancing.
Cash and Cash Equivalents
Review the net changes in cash positions to understand the liquidity and short-term financial strategies.
Increasing cash reserves in Stars and Question Marks can indicate preparation for aggressive growth strategies or buffering against market volatility.
Stable or increasing cash reserves in Cash Cows suggest good health and potential for funding other business segments.
Decreasing cash in any category needs investigating for potential issues or strategic shifts
cash flow analysis
For instance, if a division classified as a Cash Cow is showing declining cash from operations, it might be transitioning towards a Dog, indicating a need for strategic reevaluation.
Suggestions
Use the insights from the cash flow to argue whether resources should be reallocated—like investing more in Stars or divesting Dogs.
By integrating cash flow analysis with the BCG matrix
u not only understand the financial status but also align financial strategies with market positioning. This approach helps in making informed decisions about where to focus growth efforts, where to cut losses, and how to optimally allocate resources for maximum return on investment.
