Graduate Corner: Deciding on a Career in Corporate Treasury, Part I
February 25, 2005
Elizabeth Johns, Managing Director, Communications

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At AFP, students often ask us what people in corporate treasury actually do.

Very simply, a financial professional in corporate treasury is the person who makes sure that a company has enough capital on hand to sustain its operations.

The role is a bit of a paradox:  It isn't operational, but corporate treasury can impact a company's operations. It isn't accounting, but these professionals are deeply knowledgeable about the balance sheet and often provide the data that auditors rely on and the information that senior executives have to sign-off on. It isn't exactly risk management, but corporate treasury is often the first to spot potential financial risks.

In fact, the role of corporate treasury is to protect the corporate balance sheet, one of the most important functions in maintaining corporate health. To minimize fluctuations, a combination of risk management, hedging techniques and natural offsets are used.

A day in the life of corporate treasury goes something like this:

In the morning, you see how much money came in from cash receipts over night. Then you assess how much you will need for the business that day. Also, you have to figure out what type of defensive reserves to keep.

Then the real fun begins: You decide what to do with the rest of the money!

• Do you invest it overnight in a "repo?" (repurchase agreement)
  
• Do you invest it in a bond with a short-term maturity?
  
• Do you invest in something longer term?
  
• You might even consider leaving the excess right where it is – in the bank – to offset bank fees.

Sometimes you realize you don't have enough cash on hand for your business needs. This is every treasury manager's nightmare and a good reason have secured adequate liquid reserves or a source of credit in advance.

UP THE LADDER

The people who move up the ladder in corporate treasury are the ones who can see the whole picture and can maximize the efficiency of this process. They are the ones who can recognize the things that put a company's cash flow at risk.  It's mostly science, but many people say there are those who develop a "feel" for it.

Cash flow is more than the stream of available cash to fund operations. It's also an important indicator of corporate health. In fact, there's a growing piece of wisdom among equity analysts that cash flow is the very best indicator of corporate health. More than assets, the very best way to tell if a company is viable, analysts say, is by looking at the money a company has IN THE BANK.

Here's why.  With all the recent news reports of corporate scandals, we all know it's possible to "manage" a company's earnings. But there's no way to hide the cash flow. That's why people involved in corporate treasury are so important to their organizations.

Continued ....

Elizabeth Johns, AFP's managing diector of commnications, runs the association's magazine, newsletters, books and Web site, among other content initiatives.  Contact her at ejohns@afponline.org 

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