The profit center debate: What is the role of the corporate treasury department?
Article Abstract:
The services that should be provided by corporate finance and treasury departments are debated by focusing on whether such departments should be managed as profit centers or not. Treasury departments that operate as profit centers generally emphasize cash management and cost control; these departments are also more likely to establish financial manager performance standards and to offer bonuses and incentives to managers who improve corporate profits through wise investing. Corporate treasurers who dislike the profit center approach define controllers' functions as raising funds and managing finances in reaction to investment decisions made by other corporate officers. These treasurers emphasize reducing the costs of financing, but do not believe the treasurer's function includes turning a profit. Both viewpoints are discussed in detail by the corporate treasurers for American Airlines and Sara Lee Corp.
Publication Name: Cashflow Magazine
Subject: Business
ISSN: 0196-6227
Year: 1986
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Total return approach
Article Abstract:
Five risks that must be managed by treasurers concerned with generating corporate profits are identified and discussed; these are: maturity risk, the avoidance of which causes investing treasurers to stay short, which results in reductions in income; liquidity risk, the avoidance of which causes treasurers to invest in liquid assets, which results in inflated values for these investment instruments; quality risk, the assessments of which are generally related to the size of the firm invested in; sovereign risk, defined as an ability to access funds invested without undue restraint; and mechanical risk, the avoidance of which is easy, since this risk is associated with buying, selling, holding and accounting for invested assets. Risk management is the obvious key to investment strategies; however, most treasurers invest cash portfolios according to their own career prospects.
Publication Name: Cashflow Magazine
Subject: Business
ISSN: 0196-6227
Year: 1986
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Selling the concept
Article Abstract:
Treasurers who want to establish their departments as profit centers are advised to critically examine their historic functions within the corporation. Treasurers who have participated in financial decision-making with regard to debt and equity issues, cash management innovations, and alternative investment techniques are more likely to be allowed to operate as profit centers than are those treasurers who have either shown no initiative or been overruled on past innovative proposals. Treasurers are also advised to be well-versed on investment alternatives and the mechanics of investing prior to approaching top management with proposals to operate the finance and treasury departments as profit centers. A brief overview of some investment alternatives and innovative techniques is included.
Publication Name: Cashflow Magazine
Subject: Business
ISSN: 0196-6227
Year: 1986
User Contributions:
Comment about this article or add new information about this topic:
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