Part Three

Balance Sheet and Liquidity Management

THE FIRM’S BALANCE SHEET and managing its capital are key areas under the Treasurer’s ambit. The efficient management of the supply chain and the various components that fund each stage of it, especially working capital and supply-chain financing, has become a critical aspect of managing global corporations. This part covers these important and exciting areas, plus emerging areas of opportunity and focus.

We begin by looking at the management of cash flows and the need for working capital and reducing the external sources required to fund it. We then zoom out in the larger context of the balance sheet, dwelling on some of the ratios other than working capital while exploring a real-life case study on handling a liquidity crisis. We also look at cost of capital and various sources of funding, including supply chain finance alternatives. This is followed by a look at the use of cash—how to manage operating cash and strategic cash along with investment objectives and alternatives. We conclude with a look at credit ratings with an example methodology.

This part answers important questions such as:

• How relevant is the cash conversion cycle to a firm’s operations and creditworthiness?
• What can a global company do to improve its liquidity position?
• What are the determinants of a CFO’s choice of capital structure for the enterprise?
• Why is the smooth functioning of the financial supply chain critical to the survival of a company?
• What are the various elements of a firm’s cash and how are they managed?
• How does a typical credit assessment process work and what are the main points for a company’s management to bear in mind to retain and improve the company’s credit rating?

We begin with a look at the liquidity of a firm in the context of its working capital.