The treasury function administers the financial holdings and obligations of an organization. This is a major task in an organization that has millions or even billions of dollars in cash and investments, receivables, payables, and debt. Even in a smaller organization, these tasks are essential to the ability of a business to continue in operation. Consequently, though treasury is an administrative function, it is still one of the most vital parts of a business.
The treasurer is responsible for a broad range of activities, which include bank relations, cash forecasting, investments, fund raising, risk management, and even insurance. These are critical, high-risk activities, so the treasurer must also have a detailed knowledge of processes, controls, and treasury management systems. The Treasurer's Guidebook addresses all of these topics and more, with the intent of giving a new treasurer a solid grounding in how to perform the job.
Upon successful completion of this course, participants will be able to:
- Recognize the responsibilities of the treasury function.
- Cite the circumstances under which local treasury expertise is needed.
- Note the activities of the different parts of the treasury department.
- Note the different types of bank fees.
- Identify the circumstances that could trigger a credit assessment.
- Note the benefits of a cash concentration system.
- Recognize the effects of a threshold cash sweep.
- Recognize how notional pooling functions.
- Identify the circumstances under which multi-tiered banking is used.
- Identify the type of cash pooling that works best when managers want local control.
- Note the methods and adjustments used to develop a cash forecast, and why a cash forecast reconciliation is used.
- Identify the need for a correspondent bank.
- Recognize the different types of settlement systems.
- Note the different types of investment strategies.
- Recognize the characteristics of the different types of investments.
- Identify the reasons why a secondary market is needed.
- Identify the circumstances under which exemptions can be used to raise capital, and the requirements of each one.
- Cite the terms used for factoring and hard money deals.
- Note the circumstances under which a supply chain financing offer would be accepted.
- Identify the types of hedging transactions that can be used to mitigate risk, note the terms of hedging contracts, and recognize when risk mitigation is not needed.
- Recognize the types of insurance sales channels.
- Note the methods used to review the financial condition of insurers.
- Cite the terms included in insurance contracts, and their effects.
- Identify the benefits and coverage characteristics of the different types of insurance.
- Recognize the methods used to reduce the cost of insurance.
- Note the documentation typically used in a credit review.
- Recognize the uses to which a credit policy can be put.
- Identify the characteristics of a high-quality credit rating system, and when it works best.
- Cite the indicators of possible future payment delinquencies.
- Identify the actions needed to achieve zero working capital.
- Note the accounting required for the different investment activities, as well as the accounting for impairment losses, and why investments are assigned to different classifications.
- Note the accounting required for hedging transactions, the types of hedges, and the characteristics of a highly effective hedge.
- Recognize the costs and advantages of a treasury management system.
- Identify the controls for cash forecasting, investments, debt, and stock issuances.
- Recognize the formulas for turnover measurements, investment returns, and the ability to pay.
Table of Contents
Chapter 1 – Treasury Management
Treasurer Job Description
Treasury Organizational Structure
The Performance Culture
Schedule of Activities
Skills Review and Training
Chapter 1 – Review Questions
Chapter 2 – Bank Relations
Frequency of Reporting
Causes for Change
Chapter 2 – Review Questions
Chapter 3 – Cash Concentration
The Need for Cash Concentration
The Zero Balance Account
Multiple Sweep Arrangements
Notional Pooling Problems
Notional Pooling Costs
Hybrid Pooling Solutions
Cash Concentration Best Practices
Cash Concentration Alternatives
Chapter 3 – Review Questions
Chapter 4 – Cash Forecasting
The Cash Forecast
The Short-Term Cash Forecast
The Medium-Term Cash Forecast
The Long-Term Cash Forecast
The Use of Averages
Automated Cash Forecasting
The Reliability of Cash Flow Information
The Impact of Special Events
Cash Forecasting Documentation
The Foreign Currency Cash Forecast
Cash Forecast Reconciliation
Chapter 4 – Review Questions
Chapter 5 – Clearing and Settlement Systems
The Clearing and Settlement Process
Foreign Check Clearing
The Automated Clearing House System (ACH)
Continuous Linked Settlement
Chapter 5 – Review Questions
Chapter 6 – Investment Management
Cash Availability Scenarios
Types of Investments
Certificates of Deposit
Money Market Funds
U.S. Government Debt Instruments
State and Local Government Debt
The Primary and Secondary Markets
The Discounted Investment Formula
Chapter 6 – Review Questions
Chapter 7 – Equity Financing
Regulation A Stock Sales
Solicitations of Interest
Forms 1-A and 2-A
Regulation D Stock Sales
Regulation D Rules
Regulation D Process Flow
The Form D Filing
The Accredited Investor
Private Investments in Public Equity
Seasoned Equity Offerings
The Rights Offering
Chapter 7 – Review Questions
Chapter 8 – Debt Financing
Overview of Debt Financing
The Line of Credit
The Borrowing Base
Purchase Order Financing
Hard Money Loans
The Long-Term Loan
Debt for Equity Swaps
Chapter 8 – Review Questions
Chapter 9 – Supply Chain Financing
Supply Chain Financing
Early Payment Discounts
Chapter 9 – Review Questions
Chapter 10 – Treasury Risk Management
Benefits of Risk Management
Credit Policy Risk
Credit Exposure Risk
Portfolio Approach to Risk
Cross-Selling Credit Exposure Risk
Credit Concentration Risk
Foreign Exchange Risk Overview
Foreign Exchange Risk Management
Take No Action
Payment Leading and Lagging
Maintain Local Reserves
Types of Foreign Exchange Hedges
Loan Denominated in a Foreign Currency
The Forward Contract
The Futures Contract
The Currency Option
The Cylinder Option
Interest Risk Overview
Interest Rate Risk Management
Take No Action
Asset and Liability Matching
Types of Interest Rate Hedges
The Forward Rate Agreement
Relevant FRA Dates
The Futures Contract
The Interest Rate Swap
Interest Rate Options
Interest Rate Swaptions
Chapter 10 – Review Questions
Chapter 11 – Insurance
Insurance Policy Terms and Conditions
Limit of Insurance
Who is the Payee?
Insurance Company Analysis
Insurer Financial Performance
Boiler and Machinery Insurance
Business Interruption Insurance
Commercial Automobile Insurance
Commercial Crime Insurance
Commercial General Liability Insurance
Directors and Officers Liability Insurance
Inland Marine Insurance
Types of Property
Surplus Lines Insurance
Managing the Cost of Insurance
Covered Items Analysis
Double Coverage Analysis
Split Limits Elimination
Continual Policy Updates
Unlikely Rider Payouts
Small Claims Avoidance
Captive Insurance Company
Insurance Claims Administration
Chapter 11 – Review Questions
Chapter 12 – Credit Management
Overview of the Credit Policy
Credit Policy: Mission
Credit Policy: Goals
Credit Policy: Responsibilities
Credit Policy: Required Documentation
Credit Policy: Review Frequency
Credit Policy: Credit Calculation
Credit Policy: Terms of Sale
Credit Policy: Revision Frequency
The Credit Application
Adjustments to the Credit Application
Updating the Credit Application
The Credit Rating
Internal Credit Rating Systems
Third Party Credit Ratings
Use of Credit Ratings
Credit Rating Errors
Indicators of Future Payment Delinquency
Ongoing Credit Monitoring Actions
Requests for Credit Increases
The Riskiest Customers
Chapter 12 – Review Questions
Chapter 13 – Working Capital Management
The Nature of Working Capital
The Importance of Working Capital
The Optimum Amount of Working Capital
Zero Working Capital
Working Capital for a Growing Business
Working Capital for a Declining Business
Responsibility for Working Capital
The Receivables Component of Working Capital
Startup Outsourcing Strategy
Chapter 13 – Review Questions
Chapter 14 – Accounting for Treasury Transactions
Other Comprehensive Income
The Realized and Unrealized Gain or Loss
Purchase and Sale of Investments
The Gain or Loss Calculation
Noncash Acquisition of Securities
Assignment of Costs to Securities
Conversion of Securities
Sale of Securities
Accounting for Dividends and Interest Income
Stock Dividends and Stock Splits
Ongoing Accounting for Investments
The Effective Interest Method
Impairment of Investments
What is a Derivative?
Hedge Accounting - General
Hedge Accounting – Fair Value Hedges
Hedge Accounting – Cash Flow Hedges
Accounting for Insurance
Chapter 14 – Review Questions
Chapter 15 – Treasury Management Systems
Components of a Treasury Management System
Advantages of a Treasury Management System
Disadvantages of a Treasury Management System
Additional TMS Considerations
Chapter 15 – Review Questions
Chapter 16 – Treasury Controls
The Cash Forecasting Controls Environment
The Funds Investment Control Environment
The Foreign Exchange Hedge Control Environment
The Debt Procurement Control Environment
The Stock Issuance Control Environment
Additional Treasury Controls – Fraud Related
Chapter 16 – Review Questions
Chapter 17 – Treasury Measurements
Cash Conversion Cycle
Days Sales in Accounts Receivable
Days Sales in Inventory
Days Payables Outstanding
Actual Cash Position versus Forecast
Earnings on Invested Funds
Ability to Pay Measurements
Interest Coverage Ratio
Debt Service Coverage Ratio
Fixed Charge Coverage Ratio
Cash Coverage Ratio
Debt to Equity Ratio
Average Cost of Debt
Borrowing Base Usage
Additional Treasury Measurements
Chapter 17 – Review Questions
Review Question Answers and Rationales
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