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What is the role of the Treasury function?

Thursday, January 12, 2012

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In its broadest sense Treasury covers cash management, corporate finance and financial risk management.

Closer inspection reveals that the Treasury function undertakes a range of complex and skilled tasks; liaises with internal and external stakeholders and plays a key role in the smooth functioning and value creation of an organization.

Although the role of the Treasury function is constantly evolving, it can be broken down into 6 broad but interlinked categories:

  1. Planning and Operations
  2. Cash and Liquidity Management
  3. Funding and Capital Markets
  4. Financial Risk Management
  5. Corporate Governance
  6. Stakeholder Relations

Planning and Operations

Key activitiesKey benefits
Cash flow forecasting    Subsidiary and Group financial management
Risk forecastingRisks are identified early and mitigated
Investment appraisalResources are directed to the best opportunities
Tax planningClear and quantifiable approach to the future
Pensions planningTested contingencies in the event of exceptions
Co-operate with Board on strategic development Operational risk management
Choose and operate Treasury systems Transaction costs minimized
Negotiate, analyze and manage the fee’s and margins of service providersSmooth operations
Ensure quality standards of service providersEfficiency gains

Cash and Liquidity Management

Key activitiesKey benefits
Manage internal capital market by investing and lending to subsidiaries Minimize external borrowing requirement
Work with the business to optimize commercial cash flows Optimize interest expense
Work with the business to optimize working capital       Optimize tax expense
Minimize idle cash through netting and cash concentrationAvoid future liquidity problems
Confirmation and reconciliation of receipts Create ‘cash is king’ culture
Timely disbursement of paymentsSmooth operations and supplier relationships

Funding and Capital Markets

Key activitiesKey benefits
Optimization of capital structure Optimization of Weighted Average Cost of Capital  (WACC)
Manage short, medium and long-term investments Maximize yield on assets
Ensure adequate liquidity to support the businessMinimize interest expense
Ensure adequate liquidity  to meet obligations as they fall dueAccess to capital at the right time, price and conditions
Arrange liquidity for strategic events such as M&A, Divestiture and JV’s Removal of concentration risks
Diversify capital sources, partners and maturities           Ensure good credit ratings
Portfolio management of debt, derivatives and investments Ensure limits accurately reflected the borrowing requirement (thus minimizing commitment fees)
Ensure contractual terms and covenants do not constrain the business  Ensure hedging matches the funding profile (no over hedging)

Financial Risk Management

Key activitiesKey benefits
Seek natural hedges and offsets within the business Visibility of financial risks on an enterprise basis
Interest Rate risk managementMinimize external hedging requirement
FX risk managementMinimize impact of external risk on P&L and Balance Sheet
Commodity risk managementReduce  volatility
Counterparty risk management               Access to capital at the right time, price and conditions
Credit risk managementImprove asset quality
Liquidity risk management   Create ‘risk aware’ culture
Pension risk managementCertainty facilitates better decisions
Work with the business to de-risk contracts and avoid bad debtsScenario planning and stress testing avoid surprises
Involvement in business insurance  

Corporate Governance

Key activitiesKey benefits
Ensure accurate valuation of financial instruments Ensure the financial profile represents and true and fair  view
Ensure accurate accounting of Treasury transactionsAdequate internal controls
Implement and manage treasury policies and proceduresDemonstrate preparedness
Provision of covenant tests and information to investorsReputational risk management
Provision of compliance information to regulators 
Ensure accurate transaction history and audit trail 
Work with internal and external auditors 

Stakeholder Relations

Key activitiesKey benefits
Provide performance and risk analytics to Board Access to capital at the right time, price and conditions
Manage relationship with banks and other investorsRelationship benefit from proactive communication
Manage relationship with credit rating agenciesReputational risk management
Co-operate with Board and Investor Relations on shareholder mattersValuable knowledge and contacts from deep involvement with financial markets
Ensure the Treasury function is understood and valued within the businessTangible financial results in the form of cost savings, efficiency gains, yield enhancement and protecting profitability


In future articles we will explore some of these categories in more detail.

If you have any questions or requests in the meantime then please Contact Us.

Notes to users:
We are constantly expanding our functionality and improving the user experience. This requires to make changes from time to time.
This may result in small discrepancies between the help section and system, for which we apologise.

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