Treasury management is the process of controlling a corporation's liquidity and financial position through the manipulation of its cash, cash equivalents, debt, and investments. It is the strategy the corporation adopts to balance cash flow, investment opportunities, and capital structure against financial risk management and future needs. In a large corporation, treasury management would likely fall under the purview of the chief financial officer (CFO), perhaps with the aid of treasury or cash managers.
Every corporation has a fiduciary duty to maximize shareholder value, which means it has a responsibility to run a profitable business. Excess earnings could be reinvested in operations, used to expand, distributed to shareholders as dividends, or retained as part of the corporation's cash on hand in the treasury. If the corporation chooses to keep the money on hand, it has to be put to its best use as a liquid asset. The money can't sit in a corporate vault somewhere as a surety for a business downturn.
A corporation's treasury consists of its excess cash and financial investments, including bank deposits, investments in foreign currencies, financial derivatives, and trading in bonds. It is the accumulation of the corporation's liquid holdings, items that could easily be turned into cash if the corporation needed to quickly raise money. In many respects, it is the same as the treasury of any organization or association that maintains its reserve cash in a lock box, except on a much more sophisticated level.
One of the primary responsibilities of treasury management is to design a strategy for investing excess cash and to identify appropriate investment opportunities. This could likely involve managing bank accounts and short term investments, investing in foreign currencies, and working with outside investment bankers on other opportunities. The CFO has to decide on the amount of risk the corporation is willing to assume with its cash reserves while keeping in mind that the goal is to maximize the value of the holdings.
Treasury management not only deals with excess cash and attendant investments but also handles the decision of whether or not to issue more corporate debt in the form of stocks and bonds to raise money. The task is not only to properly use cash when excess amounts exist but to also raise it when necessary. It is also concerned with buying back shares from the market when it is in the interest of the corporation to shore up its capital position.
