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Treasury Management

How to Bring Method to Metrics Madness

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March 28, 2019

Tues Treas Man - whitebd pieThe benefits of an Excel workbook and giving treasury ownership of it. 

Treasurers face a major challenge in collecting myriad metrics used to measure treasury's own performance and provide decision makers with insights used to make the company more efficient and profitable. Participants at NeuGroup's T30 2019 H1 meeting in New York discussed the difficulty of satisfying constituents ranging from the C-suite and the board to bondholders, bankers and global business heads—all of whom want different metrics, sometimes to describe the same thing.

THE COMPLEXITY: Led by one of the group's members, the discussion first addressed the range of metrics used to track just leverage and liquidity. Does the requester want gross or net debt, and if the latter, should all cash or just liquid cash be included? Should interest include bank-fee amortization or not, and should it be accrued interest or interest paid out? And the list goes on. The session leader listed his technology services company's main treasury metrics, comprising a long list of items under the headings debt compliance, company and accounting.

A SOLUTION BEST LEFT TO TREASURY. It's not a "magic wand and/or a sophisticated system-based solution," but rather an easily-updated Excel-based tracking and forecasting workbook the session leader's staff developed to centralize control of all treasury-centric metrics. Of almost equal importance: Those metrics, once contributed by treasury, FP&A, external reporting and investor relations, are now pulled together by treasury into this workbook that consolidates everything in one place.

WHAT'S IN THE WORKBOOK: It provides metrics vital to the C-suite, such as free cash flow and liquid cash, as well as bank net leverage, interest coverage and other numbers requested by the board. It also attempts to replicate rating-agency models, to warn about potential changes, and provide treasury with "what if" capability for accelerated debt paydown vs. other capital allocation outcomes. The workbook provides enough granularity to fine-tune quarterly leverage for optimal debt pricing, and the model's procedures have been documented to avoid a "knowledge trap" should its developers leave the company.

KEEP IT (RELATIVELY) SIMPLE. The session leader provided a five-page example of the metrics workbook, highlighting the numbers reported to the board and those to the C-Suite. "We don't use the whole thing with them, or their eyes would glaze over," he said.

HOW TO ADD MORE VALUE. Several other members said they, too, were seeking ways to gather and use metrics more efficiently, or at least planned to. One meeting participant said his tech-services company has pulled together strategic metrics similar to the session leader's in a workbook but supplements them by looking at operational process efficiencies and how to improve them. The session leader said his team aims to head in a similar direction.

TRUMPETING TREASURY'S STORY. A metrics workbook quickly provides treasury's constituencies with the numbers they want, while telling the story of its accomplishments. Ed Scott, NeuGroup's senior executive advisor who guided the meeting, noted that optimizing metrics helps tell the strategic impact of treasury's accomplishments as well as treasury's money-saving but less recognized "plumbing" exercises, such as connecting with banks via straight-through processing. "The combination of the two is a powerful story, and unless treasury tells it, it won't get told," he said.

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