What does a treasurer do?

by Jayna Gandhi, CFA

20th November 2016

When we think about a treasurer, what comes to mind? Is the treasury profession an extension of the accounting profession? Or are treasury professionals just liquidity managers and cash flow planners?

Treasury management is different for different organisations. It is largely a fall-out of the main business activities of the organisation, and depends upon philosophy and thinking of the board of directors. Since treasury management involves handling the organisation’s cash kitty, the board is expected to be naturally conservative and risk averse. So the treasurer has to act accordingly, and in fiduciary capacity as a custodian of shareholders fund.

So how does a treasurer add value to the business? It depends on the type of business. In the case of a corporate conglomerate with significant debt, a treasurer has to focus on minimising the after-tax cost of debt, and if there is a cash surplus, improve the float efficiency through most suitable deployment.

In contrast, in an FMCG company, the cash realization on sale of product is instantaneous and no significant capital expenditure is required in foreseeable future. The stockholders’ equity minus fixed assets of the firm and current liabilities is almost equal to cash surplus of the company. Hence, treasury professionals have to assume the role of fund managers, managing the private corpus of a single investor.

In addition to managing investments, treasury managers are expected to manage risks. They have to appreciate various financial and non-financial risks such as liquidity risk, interest rate risk, credit risk, price risk for equity, commodity and currency and operational, systemic, legal/regulatory and accounting risk associated with their activities. Hence, treasury management encompasses risk management, risk mitigation and hedging strategies.

In addition, in order to discharge of their duties and responsibilities effectively, treasurers are expected to maintain cordial relationship with various internal and external stakeholders such as the board, credit rating agencies, bankers and various other market intermediaries.

Treasury management for banks is different again. Banks are in the business of taking deposits and advancing loans. Negative or positive difference between deposits and loans is a part of treasury activities. Regulations require that certain percentage of every rupee mobilized as deposit should be invested in highly liquid notified government securities, cash or gold. Asset/liability Management (ALM), the backbone of the entire bank, is highly regulated. The regulator has specified the broader norms for treasury investment. Hence, it is safe to say, here the regulator actually determines how a bank treasury should run. Also, earning the maximum treasury return adds to banks’ financial health and creates wealth for their shareholders. Unlike in corporates, treasury management is not a by-product of main business activity but is an important business segment.

To sum up, treasury management varies depending on the type and aims of the organisation, although the ultimate goal is to contribute to the ROE in each case. In today’s complex business environment, the role of treasurer is becoming increasingly important and more strategic.