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Unit 9: Cash Flows Forecasting and Treasury Management

(m) Overtrading: This occurs where a business expands too quickly, putting pressure on short- Notes
term finance.

Example: A retail chain might try to open too many stores too quickly before each starts
to generate profits.

9.7 Treasury Management

Treasury management is defined as “the corporate handling of all financial matters, the generation
of external and internal funds for business, the management of currencies and cash flows and the
complex strategies, policies and procedures of corporate finance”.
In today’s exceptionally volatile financial markets and complex business environment, successful
companies are directing their efforts aggressively to strengthen their treasury management
strategy and tactics for accelerating cash flow, ensuring better management of unused cash,
enhancing the performance of near cash assets, optimising their capital structure and financing
arrangements, identifying and managing treasury risks and introducing more efficient and
control oriented processes. The role of the Treasury function is rapidly changing to address
these challenges in an effort to achieve and support corporate goals.
Cash has often been defined as “King” and it is. However, it is no longer good enough just to
mobilise and concentrate cash and then invest it overnight with pre-tax returns barely exceeding
5% when the cost of short and longer-term debt is significantly greater. The entire treasury cycle
needs to be evaluated more closely. Questions such as, how can we harvest our cash resources
better, where can we achieve the most efficient utilisation of our financial resources, and what
are our alternative needs to be answered. Treasures and Chief Financial Officers (CFOs) need to
get closer to the process of the overall treasury cash and asset conversion cycle (sales/revenue
generation/cash flow) to better understand how, when and where cash will flow and then to
take steps to enhance its utilisation.

An effective, and efficient treasury management operations predicts, analyses and resolves the
following questions which arise during business operations.
 Do and will we have enough cash flow and funds available?

 Are our near cash assets effectively utilised?
 Should we pay down debt? Take on more debt?
 Should we hedge our interest and currency risk exposures?
 Where do our risks exist? What is the impact of those risks?

 How effective is our risk identification and control processes?
 How are these risks being mitigated? Are the methods adopted for mitigating risk effective?
 Do we have enough experienced human resources?
 Do we have the right tools and technology?

 Are we actively identifying opportunities to unlock value?
 Are we implementing effectively and are alternatives properly evaluated?
 Are our Financial Risks managed within a reasonable tolerance level?

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