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Finance: What is a Cash Cow? 0 Views

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What is a Cash Cow? Using the analogy of the cow who can be relied upon to produce milk regularly, the cash cow term is usually applied to a financial asset that generates regular cash flow and profits. The more obvious examples of cash cows are casinos and real estate in high rent areas. However, a reliable, dividend paying stock that holds value consistently, such as an Altria or Walmart may also be referred to as cash cow.

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00:00
Finance a la shmoop what is a cash cow? that feels good [Person milking a cow]
00:08
mmm that's the spot yep that's me I'm a cash cow and boy howdy does that ever
00:14
feel good in the morning well I'm a type of company that's a natural part of the
00:19
business cycle and which kind of goes like this [Business cycle chart appears]
00:22
early companies are cash pigs those pigs eat everything including tons of cash

00:27
and let me tell you what comes out of them
00:30
it ain't milk...young companies need cash capital to grow like to build server
00:35
farms yeah like that and you know different kinds of farms and oil rigs
00:40
and chemical synthesizing plants and tractors smelting factories and stamping
00:45
machines and massive robotic thingamabob makers those well those early companies
00:51
chew up tons of cash as they build their business early in their cycle building
00:56
revenues and they might burn, i dunno five million dollars in year 1 to make 1 [Stack of cash burning]
01:02
million dollars in revenues not profit that's just in revenues then they pig
01:06
out on 20 million dollars in losses in year 5 but by then maybe they have a
01:11
hundred million dollars in revenues then they begin to chill as they grow out of
01:15
being a pig into yes higher life-forms like me where they maybe start to break
01:20
even on 500 million in revenues and no losses and no profits just
01:26
breakeven and by the time they've truly evolved into me, way over here on the
01:31
bell curve of their lifecycle then they're producing tons of cash like this
01:37
CD company which now has three billion dollars of revenue in a billion bucks in [CD 'R' Us store appears]
01:42
cash profits unfortunately its future doesn't look all that great as revenues
01:47
have likely more than peaked and it'll produce a whole lot less cash in the
01:51
next decade as they you know kindly put it out to pasture so if it doesn't buy
01:56
more growth companies with its cash yeah then it becomes dinner [Butcher slicing meat and blood appears on camera lens]
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