Corporate Treasury

Corporate treasury risk and risk management

We regard the identification of treasury risk in the corporate context as the cornerstone for understanding this topic area. Clearly-defined risks with straightforward outcomes only exist in introductory textbooks. In real companies risks often affect financial performance in complex ways, where the management of one risk results in the creation of a different risk. In practice, then, the choice is not merely to eliminate a risk but to choose which risk to accept and which risk to remove or manage. Most treasurers spend much of their time attempting to understand fully the way that financial risk impacts on their company. This understanding is the basis for the strategy for risk management.

Corporate funding

This topic area can relate to small MBOs at one end of the spectrum or to large multinational groups at the other end. The underlying issues to be understood and applied are the same in both cases, although the areas of complexity may be different. For both there is a basic need to understand the future cash profile and the nature of any risks to that profile. For the highly-leveraged MBO the emphasis is on the balance of risk and return; lenders ensuring that credit risk is being managed and equity providers maximising equity returns within the constraint of avoiding debt rescheduling. For the multinational group the risks are likely to be more complex requiring an understanding of, for example, currency risk or the group legal structure. Both will impact on the group’s internal and external funding arrangements.