How to Choose the Right Treasury KPIs?

17 April, 2023
4 min
Gerry Daly, AVP Product Strategy - Treasury

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7.54 min

Table of Content

Key Takeaways
What are treasury key performance indicators?
How choosing the right treasury KPIs can help CFOs
Who should be in charge of choosing the right KPIs?
What should be considered when choosing key performance indicators for treasury?
What is the goal setting for the treasury?
How can HighRadius software be used to optimize treasury KPIs?

Key Takeaways

  • Advantages of using the right key performance indicators for the CFOs.
  • Considerations to take into account when selecting these treasury KPIs.

What are treasury key performance indicators?

Treasury key performance indicators are metrics used to track and analyze the performance of treasury. Due to the volatile economy and frequent market fluctuations, CFOs need to set the right treasury KPIs for liquidity, funding, financial risk management, and overall corporate governance.

How choosing the right treasury KPIs can help CFOs

When used correctly, KPIs can:


Who should be in charge of choosing the right KPIs?

Treasury teams are usually responsible for choosing KPIs since they are subject matter experts. It is, however, important to involve all stakeholders in selecting the right KPIs to achieve the best results, including the CFO, the Treasury/Finance Vice President, and the Treasury/Finance Director.

Choosing the Right Treasury KPIs

What should be considered when choosing key performance indicators for treasury?

The components to consider when choosing key performance indicators are:

Choosing the Right Treasury KPIs

1. Cash Management

Cash management KPIs are metrics used to measure the efficiency and effectiveness of a company’s cash management activities.

1.1 Cash management KPIs examples:

  • Percentage of account cash balance reported daily

    ((Cash balances reported daily) / (Total balance estimated)) x 100

  • Percentage of cash transactions reconciled automatically

    ((Number of automatically reconciled items) / (Number of reported transactions)) × 100

  • Percentage of business units that miss forecasting dates

    ((Number of forecasts not received at the deadline) / (Number of forecasts expected)) × 100

  • Cash conversion cycle

    Inventory days (Number of days stocks are held) + Debtor days (Number of days it takes to collect from customers) – Creditor days (Number of days it takes to pay suppliers)

  • Cash reserves in days

    Cash reserves / Average daily expenses

  • Working capital ratio

    Current assets / Current liabilities

  • Operating cash flow

    Operating income + Depreciation – Taxes + Change in working capital

  • Free cash flow

    Operating cash flow + Interest – CAPEX

1.2 Uses:

  • Gaining continuous cash visibility
  • Assessing current cash positions
  • Identifying shortfalls or spikes in current cash flows
  • Cash Forecasting

2. Cash forecasting

Cash forecasting KPIs are metrics used to measure the accuracy and reliability of a company’s cash flow projections. They include indicators such as net profit margin, gross profit margin, inventory turnover, budget variance, and Payroll headcount ratio

2.1 Cash forecasting KPIs examples:

  • Net profit margin

    (Revenue – Cost) / Revenue

  • Gross profit margin

    ((Revenue – Cost of goods sold) / Revenue) x 100

  • Inventory turnover

    Cost of goods / Average inventory

  • Budget variance

    Budgeted amount of expense – Actual cost

  • Payroll headcount ratio

    Full-time employees / Total number of employees

2.2 Uses:

  • Investing proactively and maximizing profit from the peak seasons for sales
  • Proactive borrowing to avoid overnight drafts or high-interest rates
  • Reserving cash for economic downturns

3. Debt and Investment Management

Debt management KPIs measure a company’s debt levels, while investment management KPIs measure investment performance. Examples include debt-to-equity ratio and ROI. Debt and investment management KPIs include fixed or floating ratio ratio, percentage of short-term debt, weighted average yield, and Weighted average cost of capital

3.1 Debt and investment management KPIs examples:

  • Fixed or floating ratio

    Total fixed-rate debt / Total debt

  • Percentage of short-term debt

    The total amount of short-term debt / Total amount of debt

  • Weighted average yield

    The weighted average yield on short-term investments

  • Weighted average cost of capital

    ((E/V) x Re) + ((D/V) x Rd x (1-Tc)),
    E = Market value of a firm’s equity
    D = Market value of a firm’s debt
    V = E+D
    Re = Cost of equity
    Rd = Cost of debt
    Tc = Corporate tax rate

3.2 Uses:

  • Assessing the debt and investment portfolios.
  • Making efficient borrowing decisions to safeguard the business against bad debt.
  • Addressing the investment feasibility for buying assets, M&As, and business expansion.

4. FX and Commodity Management

FX (foreign exchange) and commodity management KPIs measure the effectiveness of managing currency and commodity risks. Examples include maximum percentage of investment exposure by counterparty, length of the production cycle, value at risk, hedging ratio, and purchase price.

4.1 FX management KPIs examples:

  • Maximum percentage of investment exposure by counterparty

    (Weighted average credit default swap (CDS) spread of credit line providers x Funding available from the provider)/Funding available from the provider

  • Length of the production cycle
  • (Average inventories x Number of days in the year) / Cost of goods sold
  • Value at risk

    Vm x (Vi / (Vi-1))

    Vi= number of variables on the day i
    Vm= number of days from which historical data is taken
    Hedging ratio
    Value of hedge position / Value of total exposure

4.2 Commodity management KPIs include:

    Purchase price
    (The price paid by the investor for an investment) vs. Market price (The current price at which an asset can be bought or sold)
    Number of unauthorized positions
    Average commodity price development
    Number of different sources

4.3 Uses:

    Measuring future cash flows and earnings against market volatility.
    Managing foreign risks through effective hedging strategies and repatriation.
    Commodity management through supply-demand analysis. It helps to ensure that the assets are sold before they depreciate.

5. Risk Management

Risk management KPIs measure the effectiveness of identifying, assessing, and mitigating risks. Examples include number of risks identified, number of unidentified risks, predicted vs. actual severity of risks, etc.

5.1 Risk management KPIs examples:

  • Number of risks identified
    Number of unidentified risks
  • Number of risks that occurred
    Predicted vs. actual severity of risks
  • Frequency of risks
    Number of risks closed

5.2 Uses:

  • Reviewing risk trends regularly through increased visibility
  • Enabling accountability and providing inputs for resource allocation
  • Providing decision indicators for continual improvement of risk management

What is the goal setting for the treasury?

The key goal of treasury management is planning, organizing and controlling cash assets to satisfy the financial objectives of the organization. The goal may be to maximize the return on the available cash, or minimize interest cost or mobilize as much cash as possible for corporate ventures.

How can HighRadius software be used to optimize treasury KPIs?

Once the right KPIs for treasury are chosen, suitable cash management software is required to evaluate the KPIs frequently and ensure quality performance. Evaluating the KPIs regularly ensures end-to-end cash flow visibility and promotes proactive financial planning.

The HighRadius cash flow management tool is useful for keeping track of cash flow drivers and measuring progress towards treasury objectives. The tool provides real-time cash visibility at a global level, helps monitor intraday and previous-day cash positions, and translates cash balances into base currency with updated exchange rates. Moreover, the cash forecasting tool is useful to automate data gathering, drill down into the drivers of variance between forecasts and actuals, and continuously increase forecasts’ accuracy through artificial intelligence to make data-driven business decisions.

However, technology can only be useful with refinement in processes and upskilling people. Here are the 20 must-have treasury KPIs that help businesses understand the ways to enhance performance and improve current processes to achieve greater wins.

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