What Is a Corporate Treasury?

A corporate treasury is a business department responsible for the company’s liquidity, funding, and capital. The department may consist of a single individual or numerous employees, depending on a company’s size. Common tasks include determining the appropriate funding plan for new assets or operations, maintaining appropriate levels of current liquid assets, and raising funds through diverse investors, markets, and debt investments. Financial service firms may also use the corporate treasury department to meet regulatory requirements regarding capital levels.

Liquidity risk management is another task for a corporate treasury. Businesses need specific capital levels at all times to run operations. Capital includes cash and cash equivalents, which are highly liquid, short-term investments, and these are the most liquid assets a company can own and use to pay for operational expenses and current or long-term liabilities. Corporate treasurers typically review different investments or investment capital to gain interest revenue. The treasurer is typically an executive-level position and works with other executives to maintain capital in the business.

Funding represents a company’s capital structure. Companies often use external debt or equity funds to pay for new opportunities or major asset acquisitions. Using too much debt can increase a company’s financial leverage and make it difficult to maintain capital levels due to increased debt payments. Equity investments — most commonly new issues of corporate stock — lower the value of current outstanding shares, upsetting current investors. Creating a proper mix for these funds helps the company stay as fiscally responsible as possible through corporate treasury rules.

Capital and risk management is another task of the corporate treasury. The treasury department spends time looking at the financial risks a company may incur through regular business operations. The treasurer sets new capital requirements to ensure the business has sufficient cash on hand to meet any potential risks. The company’s dividend policy may also fall under the treasury department. Dividends represent money repaid to investors and a decrease to a company’s overall net value.

A significant driving force for a corporate treasury is compliance with all regulatory requirements. While financial services firms are often under heavy regulations, other industries may also have strong regulatory requirements. Companies need specific capital levels to pay for audits, implement new regulations, and pay taxes to government agencies. A review of regulatory requirements each quarter is common in larger businesses. This review helps set new internal policies to govern a company’s capital.