Treasury Management Fundamentals
What treasury does
Treasury sits at the intersection of finance, operations, and banking. Its core responsibilities are forecasting and managing cash, funding the enterprise at the lowest prudent cost, managing financial risks (interest rate, FX, commodity, counterparty), and overseeing bank accounts and payment infrastructure. A candidate should connect treasury actions to the three financial statements and to shareholder value.
Concepts to master
- Working capital - current assets minus current liabilities. Distinguish gross working capital (total current assets) from net working capital.
- Cash conversion cycle (CCC) - days inventory outstanding + days sales outstanding − days payables outstanding. Shorter is better.
- Cost of capital - WACC uses market-value weights and after-tax cost of debt: WACC = (E/V)Re + (D/V)Rd(1−t).
- Time value - NPV, IRR, and present value of annuities for investment and leasing decisions.
- Ratios - current, quick, debt-to-equity, interest coverage, and inventory turnover.
- Controls - treasury policy, delegation matrix, segregation of duties, and internal control over financial reporting.
Traps in questions
Profit is not cash: growing receivables or inventory absorbs cash even when revenue rises. WACC weights are market values, not book values. Gross versus net working capital is a common distractor. Ratios should use average balances when beginning and ending figures are given.
Rule of thumb / example
If DIO = 45, DSO = 60, and DPO = 30, CCC = 45 + 60 − 30 = 75 days. Cutting DSO to 50 lowers CCC to 65 and releases roughly 10 days of average daily sales in cash. Use this to show how collection improvements translate into liquidity.