Chapter 1 Treasury Department Flashcards
t ensures that a company has sufficient
cash available at all times to meet the needs of its primary business operations
Treasury Department
These forecasts are needed for investment
purposes, so the treasury staff can plan to use investment vehicles that are of the correct duration to match scheduled cash outflows
Cash forecasting
A key component of cash forecasting
and cash availability, which involves changes in the levels of current assets and current liabilities in response to a company ’ s general level of sales and various internal policies.
Working capital management
The treasury staff uses the information it obtained
from its cash forecasting and working ______ activities to ensure that sufficient cash is available for operational needs. The efficiency of this area is significantly improved by the use of cash
pooling systems.
Cash management
The treasury staff is responsible for the
proper investment of excess funds. The maximum return on
investment of these funds is rarely the primary goal. Instead, it is much more important to not put funds at risk, and also to match the maturity dates of investments with a company ’ s projected cash needs
Investment management
The interest rates that a company pays on
its debt obligations may vary directly with market rates, which present a problem if market rates are rising.
Treasury risk management
The treasury staff monitors market conditions
constantly, and therefore is an excellent in - house resource for the management team should they want to know about interest rates that the company is likely to pay on new debt offerings, the availability of debt, and probable terms that equity investors will want in exchange for their investment in the company.
Management advice
When a company issues marketable debt, it is likely that a credit rating agency will review the company ’ s financial condition and assign a credit rating to the debt
Credit rating agency relations
The treasurer meets with the representatives
of any bank that the company uses to discuss the company ’s financial condition, the bank ’ s fee structure, any debt granted to the company by the bank, and other services such as foreign exchange transactions, hedges, wire transfers, custodial services, cash pooling, and so forth.
Bank relationships
A key function is for the treasurer to maintain excellent relations with the investment community for fund - raising purposes. This community is composed of the sell side, which are those brokers and investment bankers who sell the company ’ s debt and equity offerings to the buy side, which are the investors,
Fund raising
The granting of credit to customers can lie within
the purview of the treasury department, or may be handed off to the accounting staff.
Credit granting
Given the large sums of cash involved in many treasury transactions, it is important to have a broad set of controls that help to ensure that transactions are appropriate.
TREASURY CONTROLS
Within the organizational hierarchy, the treasurer usually reports to the chief financial officer (CFO). The treasurer ’ s job description, , essentially establishes responsibility for the tasks noted in the preceding sections.
TREASURER JOB DESCRIPTION
The treasury department deals with a number of highly regimented processes. Given the very large amounts of funds that the treasury incorporates into its transactions, it is critical that all procedures be performed
precisely as planned and incorporating all controls.
TREASURY CENTRALIZATION
An _____ system processes all of the transactions
used to run all key operations of a company, so all of the information needed to derive cash forecasts and foreign exchange positions can be derived from
a single system.
enterprise resources planning (ERP) system