What I've looked at this week... 29/12/24

I’ve worked in finance for a while, and am hoping to get some qualifications (in treasury and cash management) under my belt this year so thought I’d share some of what I’m looking at on here incase it’s useful…

What is financial risk management in corporate treasury?

Financial risk management in corporate treasury involves identifying, analysing, and mitigating risks that could impact a company’s financial health. This includes managing risks such as foreign exchange, interest rates, liquidity, and credit. Treasury teams use tools like hedging, derivatives, and scenario analysis to protect against volatility, ensure sufficient liquidity, and maintain financial stability. Effective financial risk management helps businesses optimise cash flow, safeguard assets, and achieve long-term strategic objectives while navigating economic uncertainties.

• Video 1 Episode 4: Pillars of Corporate Treasury — Financial Risk Management (link here)

• Article 1 What is treasury risk management? (link here)

• Article 2 What is Treasury Risk Management? (link here)

The Buffett Indicator

The Buffett Indicator, popularised by Warren Buffett, measures stock market valuation by comparing the total market capitalisation of a country’s publicly traded stocks to its GDP. A ratio above 100% suggests the market may be overvalued, while below 100% indicates potential undervaluation. It’s a broad economic metric signalling whether equity markets are overpriced relative to the country’s economic output, offering insights into potential market risks or opportunities.

• Article 1 Market Cap to GDP Ratio (The Buffett Indicator) (link here)

• Article 2 The Buffett Indicator: Market Cap to GDP (link here)

The Cash Conversion Cycle

The Cash Conversion Cycle (CCC) measures how efficiently a company manages its working capital. It calculates the time taken to convert inventory investments into cash from sales, factoring in receivables and payables. The formula is:

Days Inventory Outstanding + Days Sales Outstanding — Days Payables Outstanding

A shorter CCC indicates better cash flow efficiency, reducing the time cash is tied up in operations.

• Video 1 The Cash Conversion Cycle Explained (link here)

• Article 1 What Is the Cash Conversion Cycle (CCC)? (link here)

• Article 2 Cash Conversion Cycle (link here)

• Article 3 Cash Conversion Cycle: Step-by-Step Guide to Understanding Cash Conversion Cycle (CCC) (link here)

Cash flow forecasting

Cash flow forecasting involves estimating a company’s future cash inflows and outflows over a specific period. It helps businesses anticipate liquidity needs, plan for investments, and avoid cash shortages. Forecasts typically use historical data, current trends, and expected events to predict operational, financing, and investing cash flows. Accurate forecasting supports better decision-making, ensuring financial stability and efficient cash management.

• Article 1 How to create a cash flow forecast in 4 steps (link here)

• Article 2 Making cash positioning and forecasting processes more efficient (link here)

• Article 3 Preparing a cash flow forecast: Simple steps for vital insight (link here)