What are the essential KPIs for treasury management?

1 Cash Flow Forecast Accuracy

Cash flow forecast accuracy is the degree to which the actual cash inflows and outflows match the projected cash flows over a given period. It is a vital KPI for treasury management because it indicates how well you can anticipate and manage your cash needs and surpluses. A high cash flow forecast accuracy means that you can optimize your liquidity position, reduce borrowing costs, and avoid cash shortages or excesses. To improve your cash flow forecast accuracy, you need to collect reliable data from various sources, use appropriate forecasting methods and tools, and update and review your forecasts regularly.

3 Cost of Capital

Cost of capital is the weighted average of the costs of different sources of financing, such as debt, equity, and hybrid securities. It represents the minimum return that an organization must earn on its investments to satisfy its investors and creditors. It is an important KPI for treasury management because it influences the capital structure, investment decisions, and valuation of the business. A low cost of capital means that you can access cheaper financing and invest in more profitable projects. To reduce your cost of capital, you need to optimize your debt-to-equity ratio, negotiate favorable terms with your lenders, and enhance your credit rating.

4 Interest Rate Risk Exposure

Interest rate risk exposure is the potential impact of changes in interest rates on the cash flows and value of an organization's assets and liabilities. It is a significant KPI for treasury management because it indicates the level of uncertainty and volatility in the financial markets and the sensitivity of the business to interest rate fluctuations. A high interest rate risk exposure means that you face a higher risk of losses or gains due to changes in interest rates. To manage your interest rate risk exposure, you need to assess your interest rate risk profile, hedge your interest rate risk with appropriate instruments, and diversify your portfolio.

5 Foreign Exchange Risk Exposure

Foreign exchange risk exposure is the potential impact of changes in exchange rates on the cash flows and value of an organization's foreign currency-denominated assets and liabilities. It is a vital KPI for treasury management because it indicates the level of uncertainty and volatility in the foreign exchange markets and the sensitivity of the business to exchange rate movements. A high foreign exchange risk exposure means that you face a higher risk of losses or gains due to changes in exchange rates. To manage your foreign exchange risk exposure, you need to assess your foreign exchange risk profile, hedge your foreign exchange risk with appropriate instruments, and diversify your currency mix.

6 Treasury Efficiency Ratio

Treasury efficiency ratio is the ratio of treasury operating expenses to total revenue. It measures the cost-effectiveness and productivity of the treasury function. It is an essential KPI for treasury management because it reflects the value-added and performance of the treasury team. A low treasury efficiency ratio means that you can deliver high-quality treasury services with minimal resources and costs. To improve your treasury efficiency ratio, you need to automate and streamline your treasury processes, leverage technology and data, and benchmark and optimize your treasury practices.

7 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?