Cash Management Flashcards
What is treasury management?
The efficient management of liquidity and risk in a business including the management of funds, currencies and cash flow
How is surplus cash invested?
In appropriate funds and realised when cash is required.
Advantage of treasury management (staff)
Management by specialised staff with appropriate qualifications, expertise and experience
Advantage of treasury management (economies)
Economies of scale
Advantage of treasury management (negotitate)
Increased negotiating power with banks
Advantage of treasury management (foreign)
More efficient foreign exchange risk management
The treasury department of a large company?
May still be a degree of decentralisation to ensure that decisions taken are appropriate to local circumstances
What is treasurer involved in?
Accurate cash flow forecasting
Investment of surpluses
Foreign currency issues
Accounts receivable/payables policies
What is the transactions motive for holding cash?
Where cash is held to provide sufficient liquidity to meet current day-to-day financial obligations
What is the precautionary motive for holding cash?
Where a cash reserve is held in order to give a cushion against unplanned expenditure
What is the speculative motive for holding cash?
Where cash is held to be able to quickly take advantage of investment opportunities that may arise
How should long-term surplus of cash be treated?
Either reinvested into projects with a positive net present value
Returned to shareholders:
Dividends
Share buy-back programmes
How are profits accounted for?
On an accruals basis and a company must be profitable to continue in existence
Why is profitability not enough?
Companies must also have enough cash flow available to meet all their day-to-day payments and longer-term commitments in order to survive.
What does a treasurer usually forecast for in cash flow budgeting?
Sales volume;
Revenue;
Costs;
One-off expenses (e.g. capex)
