By: KLIEF T.

AMORES, 2014

BA FINC 46 TREASURY MANAGEMENT

TREASURY
MANAGEMENT AND
RELATED CONCEPTS

Course Outline
o Introduction to Treasury Management

BA FINC 46 TREASURY MANAGEMENT

o Cash Management
o Cash Transfer Methods
o Cash Forecasting
o Cash Concentration
o Working Capital Management
o Credit Management
o Receivables Management
o Inventory Management
o Working Capital Metrics
By: KLIEF T. AMORES, 2014

Course Outline
o Financing
o Debt Management
o Equity Management
BA FINC 46 TREASURY MANAGEMENT

o Investment Management
o Risk Management
o Foreign Exchange Risk Management
o Interest Risk Management
o Operation Risk Management
o Operational Considerations
By: KLIEF T. AMORES, 2014

Course Outline
o Financial and Regulatory Influences

o Clearing and Settlement Systems

BA FINC 46 TREASURY MANAGEMENT

o Treasury Technology and Systems

By: KLIEF T. AMORES, 2014

 The financial center of the organization

Safeguarding and Stewardship of financial
assets and the management of financial
liabilities.
Responsible for a companys liquidity
Monitor Current Cash Flow
Monitor Projected Cash Flows
Monitor Special Funding Needs
Use this information to correctly invest
excess funds
Prepare for additional borrowings or capital
raises
By: KLIEF T. AMORES, 2014

BA FINC 46 TREASURY MANAGEMENT

Treasury Department

Financial Assets
Cash and Cash Equivalents
Cash in Bank, Time Deposits, SDAs

BA FINC 46 TREASURY MANAGEMENT

Short Term Investments

Money Market Funds

Accounts and Notes Receivable

Investments in Securities
Bonds
Equity
Funds
Derivatives

By: KLIEF T. AMORES, 2014

 Financial Institutions (Including Banks and

Dealers)
Investment Community
Regulatory Environment that dictates reporting
and accounting requirements
Accounting, audit, and legal experts
Vendors of information or infrastructure,
including payments, data, and software
Credit rating agencies

By: KLIEF T. AMORES, 2014

BA FINC 46 TREASURY MANAGEMENT

Treasury Community

Role of the Treasury Department

Cash Forecasting
Working Capital Management
Cash Management
Investment Management
Treasury Risk Management
Management Advice
Credit Rating Agency Relations
Bank Relationships
Fund Raising
Credit Granting
Other Activities (i.e. Merger, Acquisition,
System Integration)

BA FINC 46 TREASURY MANAGEMENT

By: KLIEF T. AMORES, 2014

 A process, affected by an entitys Board of

Directors, management or other personnel
(including treasury team), designed to provide
reasonable
assurance
regarding
the
achievement of (treasury and corporate
finance) objectives in the following categories:
effectiveness and efficiency of (treasury)
operations; reliability of financial (and treasury
reporting; compliance with applicable laws and
regulation.
- Franois Masquelier, Head of Corporate Finance and Treasury, RTL
Group, and Honorary Chairman, EACT
By: KLIEF T. AMORES, 2014

BA FINC 46 TREASURY MANAGEMENT

Treasury Controls

Treasurer Job Description

2. Ensure that sufficient funds are available to

meet ongoing operational and capital
investment requirements.

3. Use hedging to mitigate financial risks related

to the interest rates on the companys
borrowings, as well as on its foreign exchange
positions.

By: KLIEF T. AMORES, 2014

BA FINC 46 TREASURY MANAGEMENT

REPORTS TO CHIEF FINANCE OFFICER)

Basic Functions:
1. Forecast cash flow positions, related borrowing
needs, and available funds for investment.

Treasurer Job Description

Basic Functions:

4. Maintain banking relationships.

BA FINC 46 TREASURY MANAGEMENT

5. Maintain Credit Rating Agency Relationships.

6. Arrange for equity and debt financing.
7. Invest funds.
8. Invest pension funds.
By: KLIEF T. AMORES, 2014

Treasurer Job Description

10.Advise management on the liquidity aspects of

its short and long-range planning.
11.Oversee the extension of credit to customers.
12.Maintain as system of policies and procedures
that impose an adequate level of control over
treasury activities

By: KLIEF T. AMORES, 2014

BA FINC 46 TREASURY MANAGEMENT

Basic Functions:
9. Monitor the activities of third parties handling
outsourced treasury functions on behalf of the
company.

Treasury Centralization

Stage 2. Centralized netting and hedging

A central staff nets payments between
subsidiaries and hedges major foreign exchange
and interest rate risks. Local locations still manage
their own bank accounts, customer credit,
payables, borrowings, and investments.
By: KLIEF T. AMORES, 2014

BA FINC 46 TREASURY MANAGEMENT

Stage 1. Complete Decentralization

Individual locations manage their own bank
accounts, foreign exchange transactions, customer
credit, payable borrowings, and investments.

Stage 3. Centralized Investments

In addition to prior centralization, a central
treasury staff consolidates and manages all bank
accounts, including pooling of funds and
investment of those funds. Local locations still
manage customer credit and payables.
Stage 4. Centralized Working Capital Management
In addition to prior centralization, the
central treasury staff centralizes credit granting
and uses a payment factory for centralized
payables management.
By: KLIEF T. AMORES, 2014

BA FINC 46 TREASURY MANAGEMENT

Treasury Centralization

Treasury Compensation

It makes considerably more sense to create a

compensation plan that rewards the treasury
staff for its exact adherence to a detailed set of
investment guidelines (IG).

By: KLIEF T. AMORES, 2014

BA FINC 46 TREASURY MANAGEMENT

Treasury staff should not operate under a

bonus plan that issues compensation based on
unusually high rates of return on investment,
nor for gains from active speculation in other
currencies.

Bank Relations
Relationship Bank Relations

BA FINC 46 TREASURY MANAGEMENT

Bank Account Analysis

Type of Fees
Bank Account Management

Loan Covenants
Collateral

By: KLIEF T. AMORES, 2014

General Category
Services Provided
General Account Services Monthly account fees for
checking, zero-balance,
and concentration
accounts, as well as the
account analysis
statement fee

By: KLIEF T. AMORES, 2014

BA FINC 46 TREASURY MANAGEMENT

Type of Fees

Type of Fees
Services Provided

Fees on an individual basis for

domestic deposits, international
deposits, scanned checks,
electronic payment direct sends,
and fees for the electronic clearing
agent. If a check scanned is used,
there is also a monthly fee for that
service.
By: KLIEF T. AMORES, 2014

BA FINC 46 TREASURY MANAGEMENT

General
Category
Depository
Services

Type of Fees
Services Provided

Fees on an individual basis for

paper checks paid.
Fees on an individual basis for
Automated Clearing House (ACH)
debit and credit transaction.

By: KLIEF T. AMORES, 2014

BA FINC 46 TREASURY MANAGEMENT

General
Category
Paper
Disbursement
Services
General ACH
Services

General
Services Provided
Category
Wire and other Fees on an individual basis for both
fund Transfer
incoming and outbound wire
Services
transfers. They may also be a
monthly fee to maintain and online wire transfer capability

By: KLIEF T. AMORES, 2014

BA FINC 46 TREASURY MANAGEMENT

Type of Fees

Type of Fees

Investment /
Custody
Services

Services Provided

Monthly fee to provide reporting

services, to which may be added
line item fees for each transaction
listed in the reports.
Monthly investment sweep fee.

By: KLIEF T. AMORES, 2014

BA FINC 46 TREASURY MANAGEMENT

General
Category
Information
Services

Treasury Outsourcing
Treasury Management System (TMS)
Application Service Provider (ASP)
BA FINC 46 TREASURY MANAGEMENT

Treasury Metrics
Earnings Rate on Invested Funds
Borrowing Base Usage Percentage
Other Metrics

By: KLIEF T. AMORES, 2014

Treasury Management System (TMS)

The system will allow the corporate treasurer to

manage the organizations financial risks and
liquidity profile in a transparent and controlled
environment by providing timely and reliable
data.

By: KLIEF T. AMORES, 2014

BA FINC 46 TREASURY MANAGEMENT

It will automate all standard day to day

corporate treasury processes from front
through to back and middle office

Treasury Management System (TMS)

People

Segregation &
Controls
Key Performance
Measurement
By: KLIEF T. AMORES, 2014

BA FINC 46 TREASURY MANAGEMENT

Roles and
Responsibilities

Treasury Management System (TMS)

Process

Business Process
Reengineering
Policies,
Procedures &
Reporting
By: KLIEF T. AMORES, 2014

BA FINC 46 TREASURY MANAGEMENT

Business Process
Understanding

Treasury Management System (TMS)

System
Identification,
Evaluation &
Selection
System
Implementation
System Audit &
Review
By: KLIEF T. AMORES, 2014

BA FINC 46 TREASURY MANAGEMENT

Technology

 is a business providing computer-based services

to customers over a network; such as access to
a particular software application (such as
customer relationship management) using a
standard protocol (such as HTTP).

By: KLIEF T. AMORES, 2014

BA FINC 46 TREASURY MANAGEMENT

Application Service Provider (APS)

Earnings Rate on Invested Funds

+
=

+ ( )

Other Metrics

Bad Debts as A Percentage of Sales

Transaction Error Rate
Cost of Outside Services
Unhedged Gains and Losses
By: KLIEF T. AMORES, 2014

BA FINC 46 TREASURY MANAGEMENT

Borrowing Base Usage Percentage

Jollibee Food Incorporated (JFI)is earning a

considerable return from its chains of urban cities
food chains. Its treasurer wants to know its earnings
rate on invested funds during the past year. It had
Php10M of invested funds at the beginning of the year
and Php15.5M at the end of the year. It earned
Php750K in interest income, and had a net gain of
Php1.5M on its short-term equity investments. What
is the earnings rate on invested funds of JFI?

By: KLIEF T. AMORES, 2014

BA FINC 46 TREASURY MANAGEMENT

Activity 1.

SM Prime Holdings, a construction company, has

been in a breakeven cash flow situation for a number of
years. The market for its products and services is
gradually declining, and the president is searching for
alternative products that will shift the company into a
more profitable situation. In the meantime, he needs to
know the proportion of debt available under the
companys borrowing arrangement, in order to see how
much funding is available to start new lines of business.
Under the terms of the loan, the borrowing base
percentage for accounts receivable is 70 percent, 50
percent for inventory, and 20 percent for fixed assets.
According to the companys balance sheet, it has the
following assets and liabilities?
By: KLIEF T. AMORES, 2014

BA FINC 46 TREASURY MANAGEMENT

Activity 2.

Account
Account Receivable
Inventory
Fixed Assets
Accumulated Depreciation
Loans

Amount
Php35,000,000.00
Php42,500,000.00
Php20,500,000.00
(Php650,000.00)
Php25,000,000.00

In what percentage is the Borrowing Base Usage of

SM Prime Holdings, Inc.?

By: KLIEF T. AMORES, 2014

BA FINC 46 TREASURY MANAGEMENT

Activity 2. (Continuation)

Jollibee Food Incorporated (JFI)is earning a

considerable return from its chains of urban cities
food chains. Its treasurer wants to know its earnings
rate on invested funds during the past year. It had
Php10M of invested funds at the beginning of the year
and Php15.5M at the end of the year. It earned
Php750K in interest income, and had a net gain of
Php1.5M on its short-term equity investments. What
is the earnings rate on invested funds of JFI?
=

750 + 1.5
(10 + 15.5)/2

= 17.65% Earnings Rate on Invested Funds

By: KLIEF T. AMORES, 2014

BA FINC 46 TREASURY MANAGEMENT

Activity 1.

SM Prime Holdings, a construction company, has

been in a breakeven cash flow situation for a number of
years. The market for its products and services is
gradually declining, and the president is searching for
alternative products that will shift the company into a
more profitable situation. In the meantime, he needs to
know the proportion of debt available under the
companys borrowing arrangement, in order to see how
much funding is available to start new lines of business.
Under the terms of the loan, the borrowing base
percentage for accounts receivable is 70 percent, 50
percent for inventory, and 20 percent for fixed assets.
According to the companys balance sheet, it has the
following assets and liabilities?
By: KLIEF T. AMORES, 2014

BA FINC 46 TREASURY MANAGEMENT

Activity 2.

Account
Account Receivable
Inventory
Fixed Assets
Accumulated Depreciation
Loans

Amount
Php35,000,000.00
Php42,500,000.00
Php20,500,000.00
(Php650,000.00)
Php25,000,000.00

In what percentage is the Borrowing Base Usage of

SM Prime Holdings, Inc.?
=

25,000,000.00
49,720,000.00

= 50.28% Borrowing Base Usage

By: KLIEF T. AMORES, 2014

BA FINC 46 TREASURY MANAGEMENT

Activity 2. (Continuation)

United States, Federal Reserve Bank of New York, 1998.

By: KLIEF T. AMORES, 2014

BA FINC 46 TREASURY MANAGEMENT

A perfect market is a district, small or large, in

which there are many buyers and many sellers, all
so keenly on the alert and so well acquainted in
one anothers affairs that the price of a
commodity is always practically the same for the
whole of the district.
- Alfred Marshal, quoted in The Foreign Exchange Market in the

BA FINC 46 TREASURY MANAGEMENT

THANK YOU!

By: KLIEF T. AMORES, 2014