You know it better than anyone else: your role in your company is more than strategic. Cash forecasts are at the heart of companies’ concerns, especially for large groups. As a result of the financial crisis, each executive wishes to have a clear and precise vision of liquidity in order to ensure optimal management.
Each treasurer has his own methods and tools. However, all share a common denominator: key indicators. Here is a non-exhaustive overview.
Financing requirements
This is one of the most important indicators for the treasurer. It shows the company’s financing requirement, ideally over 12 to 24 months.
It will enable the company to develop a financing strategy with banks and investors. The amount required will be decided on the basis of factors such as competitive environment, dividend policy, and capital intensity.
Free cash flows
A key indicator, which measures the cash flow generated by the economic asset.
Even if your business is easy to anticipate, your cash position will probably never be true to your forecast. Indeed, volatile cash flows can have a significant impact on the company ’s activity, even over a very short period of time. It is therefore essential to quantify changes in cash flows, as this will impact the Group’s financing strategy.
Cash reserve
As seen in recent years, unpredictable financial events (financial crises, devaluation of currencies…) have significant consequences and are becoming more and more frequent. Today, it is imperative to take them into account, even if they are difficult to quantify and to anticipate.
The company must have available cash at the right time, in the right place and in the right currency to be able to cope with all its imperatives.
Financial forecast
It is necessary to prepare a forecast balance sheet, over a period of at least 24 months. This balance sheet will show the company’s financial strength and flexibility.
It is important to note that the reliability of a forecast balance sheet is not only measured by the ratios, but also by the ability to repay the debt.If the debt is too high, this can add considerable financial stress to the company.
Debt refund
The treasurer will have to determine the maximum amount that the company can repay, ideally over a period of 12 months. It is important not to set too high an amount, relying on the current good health of the business. For several years, markets have been rather unstable and conditions can change very rapidly: it is, therefore, advisable to remain cautious.
As you have understood, it is important to pay close attention to these indicators, which will enable you to anticipate your company’s financing need.
If you are treasurer of an international group, you need to aggregate information from all your subsidiaries. Reminding them of the indicators that you need will always be helpful.
