How should global corporations best manage short-term operational capital needs to mesh with long-term strategic aims? Long-term objectives are invariably dependent on performance over the shorter term. A glance at recent corporate history shows that good management of short-term operational capital has often been the survival factor for companies facing trading or event-driven difficulties. So, where the corporation’s day-to-day working capital is concerned, preservation of value will always be the treasurer’s primary motivation.
Liquidity is also key. Accurate cash flow forecasting is still a considerable challenge for companies. Studies by research firm BDRC, carried out on behalf of ABN AMRO’s Working Capital business, reveal that treasurers’ ability to predict cash balances falls steeply for time horizons beyond two-to-three days. So keeping short-termfunds highly liquid is obviously critical (see graph).
