Page 33 - Portfolio Analysis
P. 33
BALANCING THE PORTFOLIO
The task of management is therefore to achieve a balance in the portfolio
of businesses undertaken by the firm. This is achieved by taking cash
generated by cash cows and dogs and some problem children (even if this
is achieved through disposals) and using it to support the stars and
selected potential growth businesses of the problem children quadrant.
Consequently, attention must be paid to those divisions with large cash
appetites. Unless the company has sufficient resources and cash flow, it
cannot afford to support many such divisions at any one time. If resources
(including debt capacity) are spread too thinly, the company will simply
wind up with too many marginal divisions and suffer a reduced capacity to
finance promising new product entries or acquisitions in the future.
