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CA Intermediate · Financial Management and Strategic Management · Strategic Analysis: Internal Environment

Ranjit Auto Components has three businesses. Business P has a high relative market share in a low-growth market and generates surplus cash. Business Q has a low relative market share in a high-growth market and needs heavy investment, with uncertain outcomes. Business R has a low share in a low-growth market and earns little. Management decides to use P's cash to selectively fund Q so it may gain share, and to divest R. Which classification and action pairing is consistent with the BCG matrix?

P is a Cash Cow because it has high relative share in a low-growth market, Q is a Question Mark because it has low share in a high-growth market, and R is a Dog because it has low share in a low-growth market. Funding Q from P and divesting R fits the BCG prescriptions.

  1. AP is a Star, Q is a Dog, R is a Cash Cow
  2. BP is a Cash Cow, Q is a Question Mark, R is a DogCorrect
  3. CP is a Question Mark, Q is a Star, R is a Cash Cow
  4. DP is a Dog, Q is a Cash Cow, R is a Question Mark

Explanation

High share and low growth is a Cash Cow (P). Low share and high growth is a Question Mark (Q), which needs cash and may become a Star if share is built. Low share and low growth is a Dog (R), commonly a divestment candidate. Option A mislabels P as a Star, which would need high growth.

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