A report from Citi GPS and Citi Services, ‘Treasury Leadership: Does it Matter?’, has concluded companies that encourage treasury teams to be leaders enjoy better financial performance. Citi estimates that the top 40 performing treasuries measured in the study may have generated billions of dollars in additional earnings over the last five years attributable to their better treasury performance.
“High-performing treasuries ensure efficient funding of working capital, proactively identify and mitigate financial risks, and deploy liquidity to fund the company’s growth,” said Shahmir Khaliq, global head of services at Citi.
In particular, the study found that the adoption and integration of treasury management systems drive the greatest improvement in overall treasury performance. Utilisation and integration of enterprise resource planning (ERP) and trading platforms with both banking systems and treasury management systems showed a strong positive correlation with treasury sophistication.
These results show that companies need to accelerate investments in treasury transformation
A key finding of the survey is that company earnings-to-revenue ratio increases significantly between the bottom 25% and top 25% of treasuries, with the top 40 performing companies, as measured by the study, generating $44bn of additional earnings over the past five years.
The study confirmed that companies that generate larger annual revenues are generally more efficient and effective in their treasury policies, processes, and procedures. However, the biggest differentials between small and large companies are in the areas of liquidity, working capital, and systems & technology.
While effective cash and liquidity management is a core function for treasury, Citi’s report highlights that this area contains significant opportunities for improvement for companies. Citi believes the data shows many are still struggling with the fundamentals – including complete cash visibility, robust cash forecasting, well-engineered liquidity structures to centralise cash, and high process automation. Meanwhile, leading treasuries are leaping forward, leveraging digitalisation as a key enabler for core automation and to leverage data for insights towards more effective decision-making.
“These results show that companies need to accelerate investments in treasury transformation,” said Stephen Randall, Citi’s global head of liquidity management services. “The good news is that the latest generation of technology-based financial services equips treasurers to automate, manage risk, and use insights to support business growth and contribute to financial outperformance.”
Other findings of the survey include:
According to Citi, Fortune 500 companies reported $3.1tn in profits in 2022. By applying the performance quartiles and ratios inferred from this study to this larger population of companies, Citi suggests these companies may have left $165bn in profits behind in 2022 due to underperforming treasury.
Treasury Leadership: Does it Matter? is available here.