Corporate treasury manages a company’s liquidity, financing, and capital, including determining financing plans, maintaining liquid assets, and managing risk. Compliance with regulatory requirements is also a key task.
A corporate treasury is a business department responsible for the liquidity, financing and capital of the company. The department may consist of a single individual or numerous employees, depending on the size of the business. Common tasks include determining the appropriate financing plan for new assets or operations, maintaining appropriate levels of current liquid assets, and raising funds through various investors, markets, and debt investments. Financial services companies may also use the corporate treasury department to meet regulatory requirements regarding capital levels.
Liquidity risk management is another task for a corporate treasury. Companies need specific levels of capital at all times to execute operations. Capital includes cash and cash equivalents, which are short-term, highly liquid investments, and these are the most liquid assets a business can own and use to pay operating expenses and current or long-term liabilities. Corporate treasurers typically review different investments or investment capital for interest income. The treasurer is typically an executive level position and works with other executives to maintain capital in the business.
Financing represents the capital structure of a company. Companies often use foreign debt or equity funds to pay for new opportunities or major asset acquisitions. Using too much debt can increase a company’s financial leverage and make it harder to maintain capital levels due to increased debt payments. Equity investments, most commonly new corporate stock issues, reduce the value of current outstanding shares, upsetting current investors. Creating an appropriate mix for these funds helps the company remain as fiscally responsible as possible through corporate treasury rules.
Capital and risk management is another task of corporate treasury. The treasury department spends time analyzing the financial risks that a company may incur through regular business operations. The treasurer sets new capital requirements to ensure the business has enough cash on hand to face any potential risk. The company’s dividend policy may also fall within the treasury department. Dividends represent money paid out to investors and a decrease in a company’s overall net worth.
A major driving force for a corporate treasury is compliance with all regulatory requirements. While financial services businesses are often subject to strict regulations, other industries may also have strict regulatory requirements. Companies need specific levels of capital to pay for audits, implement new regulations, and pay taxes to government agencies. A review of regulatory requirements every quarter is common for larger companies. This review helps establish new internal policies to govern a company’s capital.
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