Final answer:
A cash cow does not need substantial reinvestment because it is a self-sustaining segment that consistently generates more revenue than the investment required for its maintenance. These profits can be used for reinvestment in other areas, but for the cash cow itself, minimal reinvestment is needed due to its steady income stream.
Step-by-step explanation:
A cash cow doesn't need substantial reinvestment because it generates a high amount of profit. To define a cash cow in business terms, it refers to a product or a segment of a company which consistently generates more revenue than what is invested in it. These products or segments require minimal maintenance or reinvestment as they produce a steady stream of income without significant expense.
Firms that are generating considerable profits may choose to reinvest these earnings into various areas like equipment, structures, and research and development. However, this is often the strategy for companies in growth stages or those encountering financial challenges. In the case of established firms with solid products or divisions that qualify as cash cows, their existing cash flow is adequate to maintain operations and the financial health of the segment, negating the need for substantial reinvestment.
Although firms can raise capital by borrowing from banks or issuing bonds, a cash cow intrinsically funds itself, thereby eliminating the reliance on external financial capital sources such as loans or investors.