CTP MODULE 1 - Introduction to Treasury Management edition 5

What are 3 criteria for a director to be considered independent under NYSE standards?

1) the director must have no material relationship with the listed company directly or indirectly as a partner, shareholder or officer of the organization. 2) the director must meet in regular executive sessions without management present. 3)the direct must not have been employed or an independent auditor for the company during the cooling off period

Differentiate among the following 6 finance job titles/functions by identifying to whom each typically reports. 1. Treasurer 2. Controller 3.Risk management 4.Accounts payable 5.Internal auditor 6.External Auditor

1. Reports to CFO 2. Reports to CFO 3. Reports to treasurer 4. Reports to controller 5. report to board of directors 6. report to board of directors

Shared Service Center

A department or operation within a multiunit organization tasked with supplying multiple business units and their respective divisions and departments with specialized services, such as information technology (IT), human resources (HR), or accounts payable (A/P) services. In some companies this includes day-to-day treasury operations (cash management) and other treasury functions, which may be operated as this

What are the disadvantages of centralized treasury?

A disadvantage is that field office personnel have reduced autonomy.

Board of Directors

A group of individuals that are elected as, or elected to act as, representatives of the stockholders to establish corporate management-related policies and to make decisions on major company issues. Such issues include the hiring/firing of executives, dividend policies, options policies, and executive compensation. Every public company must have this.

economies of scale

A relationship that occurs when an increase in sales lowers the average cost per unit sold.

Operating Cycle

A representation of the flow of funds through a company from the acquisition of raw materials, through the production cycle and the sale of products or services, and finally to the collection of payments from customers.

What are 12 areas of internal collaboration for the treasury department?

Accounts receivables, accounts payable, information technology, retirement benefits management, internal audit, risk management, accounting & reporting, tax, procurement, legal, financial planning & analysis, human resources payroll,

What are the advantages/disadvantages of decentralized treasury?

Advantages- local subsidiary personnel possess familiarity with local business and banking practice as well as intimate knowledge of customs, language, & culture. Disadvantages-duplication efforts and resources across units. there may be heavier compliance burdens due to span of control issues and the increased need for coordination.

Financial Planning

An organizational function that involves determining the need for present and future funding to support operations. An important part of this function is the forecasting of revenues, income, and external financing required to support the company's planned growth.

What are 3 required committees on a board of directors?

Audit committee, compensation committee, & nominating committee

What are 4 components of corporate governance's checks & balances that protect the owners/investor?

Board of directors, shareholder meetings, independent external auditors, & regulatory agencies.

What are financial professionals in an organization?

CFO, Treasurer, Assistant Treasurer/Manager of treasury Operations, Cash manager, controller, risk manager, internal auditor, credit manager, accounts receivable manager, accounts payable manager, investor relations manager/officer

What are the 8 tasks involved in daily cash management?

Calculating cash positions, Monitoring cash balances on deposit at financial institutions, Collecting, concentrating, & disbursing cash, investing & borrowing funds on a short-term basis when needed, developing cash flow forecasts, researching & reconciling exception items, coordinating efforts with other finance areas, managing bank & investment administration & relationships

What are the 4 spheres of control/specialization from the most broad to the most specific?

Corporate governance, financial management, treasury management, & cash management

What are the primary responsibilities of the treasurer?

Developing strategy & implementing treasury policies & procedures, Overseeing daily liquidity & cash management, short & long term investing, arranging short & long term external financing, managing financial risk, managing relationships with financial institutions & other service providers, managing domestic & international payments, overseeing financial reporting and compliance.

What are 8 areas for which the treasurer is primarily responsible?

Developing strategy & implementing treasury policies & procedures, overseeing daily liquidity & cash management, short & long term investing, arranging both short & long term external financing, managing financial risks, managing relationships with banks/ financial institutions and other service providers, managing domestic & international payments, overseeing financial reporting & compliance

What is corporate governance?

It's the principles & processes that governs firm and guides managerial decision making to achieve desired strategic objectives.

What are the major objectives of treasury management?

Maintain liquidity, Optimize cash resources, maintain access to short-term financing, manage investments, maintain access to medium & long term financing, manage risk, manage information & technology, collaborate with other departments & share financial information, manage external parties

Which of these objectives represent core cash management activities?

Maintaining liquidity, optimizing cash resources, maintaining access to short term financing, & managing investments are the core cash management activities because they ensure the firm can meet its short term obligations.

Why is bank relationship management important?

Most companies have multiple banking relationship to limit counterparty risk & enhance competitive process.

What are 5 items the board of directors must grant management the authority to do?

Open close & modify bank accounts, Establish credit facilities, oversee investments, issue debt & equity securities, devise implement & execute risk management strategies

What activities do the board of directors typically grant treasury the authority to perform?

Open close modify bank accounts, establish credit facilities, oversee investments, issue debt & equity securities, devise implement & execute risk management strategies

What are 2 consequences companies face for failing to adhere to NYSE standards?

Public embarrassment & loss of investor capital

Why are shared service centers (SSCs) typically deployed?

Reduce cost of multiple or duplicate operations, standardize processes, improve the quality & timeliness of services, increases strategic flexibility, strengthen internal controls

Liquidity

The ability of an organization to convert assets into cash quickly and without a significant risk of loss.

Chief Executive Officer

The highest ranking executive in a company whose main responsibilities include developing and implementing high-level strategies, making major corporate decisions, managing the overall operations and resources of a company, and acting as the main point of communication between the board of directors and the corporate operations.

Capital

The more permanent sources of funds used by a company, such as long-term debt, preferred stock, and common equity.

Disaster Recovery

The restoration of systems and communications after an event causes an outage

financial risk

The risk that The overall value of an organization may change in response to a change in interest rates or foreign exchange rates

Chief Financial Officer

The senior manager who is responsible for overseeing the financial activities of an entire company. This includes signing checks, monitoring cash flow, and financial planning.

Cash Management

The subset of treasury management that specifically deals with managing the daily liquidity (available cash) of a company or organization to ensure the company or organization can meet its short-term obligations.

Working Capital

The sum of a company's current asset accounts (primarily cash, accounts receivable, and inventory) less the sum of its current liability accounts (primarily payables and accrual accounts). Also known as net working capital.

Working Capital Gap

The time gap between a cash outflow and a cash inflow.

What are the 2 types of treasury operation setups?

Treasury as a cost center and treasury as a profit center

What is the downsize to making treasury a cost center?

Treasury is usually regarded as a support function so a down side to this organizational structure is management may focus on the cost & not the value provided by the function leading to difficulties in obtaining adequate budget & staff

Independent Director

Under New York Stock Exchange standards, this is a director who has no material relationship with the listed company, either directly or as a partner, shareholder, or officer of the organization.

Outsourcing

Utilizing a third party to perform all or part of a core function.

Regional Treasury

a setup in which centers provide treasury to specific subsidiaries with a designated geographic area (I.e. North America, Latin America, Middle East)

Decentralized Treasury

a setup in which local subsidiary personnel are responsible for some daily treasury functions but there is often a duplication of efforts & resources across units

Treasury as a profit center

an approach found in companies heavily involved in global finance, trade, or risk management

What are 3 ways to control treasury functions?

centralized treasury, decentralized treasury, & regional treasury centers

What are the various ways a treasury department can be organized?

cost center vs profit center, centralized vs decentralized, share service center scc

Treasurer

develops strategy & implements treasury policies & procedures, oversees liquidity & cash management, performs long & short term investing, arranges both short & long term external financing, manages financial risk, manages relationships with banks & other service providers, manages domestic & international payments, oversee financial reporting & finance & compliance

Cash Manager

directs daily operations in this area to include cash administration, management of bank accounts, & bank relations

What are ten areas of external collaboration for the treasury department?

financial institutions, 3rd party providers, rating agencies, external investment managers, external auditors, regulatory agencies, industry trade groups, suppliers & customers, external legal counsel, financial markets,

Chief Financial Officer

member of executive management team & reports to ceo; usually oversees treasury, risk, tax investor relations financial planning analysis & accounting functions

Treasury as a cost center

most commonly used approach because it's usually regarded as a support function

What is the key challenge to corporate governance?

one challenge relates to the separation of ownership & control; shareholders own the corporation but executives control firm's operations. It's a challenge because managers can make decisions with little oversight by shareholders.

Accounts Payable Manager

person ensures payments are made to vendors & suppliers in a manner that is consistent with credit terms

Assistant treasurer/manager of Treasury Operations

person generally responsible for treasury's daily operations enabling their direct supervisor to focus on strategic issues

Internal Auditor

person in this position ensures controls & operating procedures are established to protect the company from losses caused by inefficiency, inaccuracy, or fraud

Risk Manager

person in this position may be assigned to risk areas (I.e. insurance policies & coverage levels, disaster recovery, & business continuity planning). A chief officer in this area may head an enterprise risk management program.

Credit Manager

person in this position preserves & collects accounts receivable, sets corporate credit policies, approves the extension of credit terms & exposure limits to customers and establishes information systems to monitor accounts receivable

Accounts Receivable Manager

person responsible for monitoring & collecting payments created through credit sales

Controller

primary function of financial reporting & often responsible for accounts payable, accounting, budgeting, & coordinating with external auditors

What are 5 reasons the shared service centers (SSCs) are typically deployed?

reduce the cost of multiple or duplicate operations, standardized processes, improve the quality & timeliness of services, increase strategic flexability, strengthen internal controls

treasury management

role that includes long term borrowing & investment & financial risk management

Centralized Treasury

set up that allows less autonomy to field office personnel

What are 3 benefits of a centralized treasury?

stronger control, economics of scale, & lower operating costs & with multinational there may be specific tax advantages based on location of treasury.

What's required for a director to be considered independent under the NYSE?

the board must determine that the director has no material relationship with the listed company, either directly or as a partner, shareholder, or officer of the organization.

Cash Conversion Cycle (CCC)

the length of time funds are tied up in working capital, or the length of time between paying for working capital and collecting cash from the sale of the working capital

Financial management

the role that is made up of treasury, accounting, tax, investor relations, & financial planning and analysis

what checks and balances do corporate governance procedures establish to protect shareholders?

they establish a set of checks & balances to place limits on executive prerogatives & to monitor management performance. I.E. external auditors & regulatory agencies

investor relations manager/officer

this person makes sure that both the shareholders & bondholders receive up to date info on the company especially on financial reporting required by regulatory authorities

Corporate governance

this role guides managerial decision making to achieve the desired strategic objectives