1. Essentials of Corporate Finance Chapters 12, 13, 14, and 15
Corporate Treasury
Essentials of Corporate Finance
Chapters 12, 13, 14, and 15
Materials Created by Glenn Snyder – San Francisco State University

2. Materials Created by Glenn Snyder – San Francisco State University
Topics
What is Corporate Treasury?
Determining Capital Structure
Long-Term Cash Flow Analysis
Public vs. Private
Management
Raising Capital
Debit
Equity
Dividend Policy
Who should issue dividends?
Dividend Impact to Stock Prices
Raising Dividends
Career Advice for a Treasury Analyst
February 26, 2007
Materials Created by Glenn Snyder – San Francisco State University

3. What is Corporate Treasury?
Corporate Treasury is the area within Finance that analyzes the company’s cash flow from an internal perspective
Internal Cash Flow Analysis includes:
Debt Coverage
Dividend Payments
Initial Public Offerings (IPO)
Secondary or Additional Equity Offerings
Repurchase of Stock
Cash Management and Investments
February 26, 2007
Materials Created by Glenn Snyder – San Francisco State University

4. Determining Capital Structure
A company’s capital structure is effectively how a company is financed
What percentage of total assets are financed from debt?
What percentage of total assets are financed from equity?
Determining the best capital structure for a company is based on its long-term cash flow and as a going concern
Does the company have a limited life?
Are future cash flows certain for variable?
February 26, 2007
Materials Created by Glenn Snyder – San Francisco State University

5. Long-Term Cash Flow Analysis
If the company has strong certain cash flows for several years, it should be weighted towards debt
Cash flow to make debt payments
Tax benefit from the interest payments
Ownership is not diluted by issuing additional shares
Debt has a fixed time horizon
February 26, 2007
Materials Created by Glenn Snyder – San Francisco State University

6. Long-Term Cash Flow Analysis
If the company has variable or uncertain cash flows for several years, it should be weighted towards equity
Less of a cash obligation for debt payments
Greater flexibility for cash flow fluctuations
Allows for long-term investing without worrying about short term obligations
Start-ups generally issue equity as they don’t have the cash flow for the debt obligations
February 26, 2007
Materials Created by Glenn Snyder – San Francisco State University

7. Materials Created by Glenn Snyder – San Francisco State University
Public vs. Private
In the U.S., companies tend to go public so the owners can receive the cash
Advantages for a Public Company
Greater access to capital
Owners can “cash out”
Increases liquidity of the company for the owners
In flow of cash for an equity issuance provides a cushion for the “what if” scenarios, and should reduce debt financing (interest rates)
The company would be less risky with the additional cash and stronger balance sheet
February 26, 2007
Materials Created by Glenn Snyder – San Francisco State University

8. Materials Created by Glenn Snyder – San Francisco State University
Public vs. Private
Advantages for a Private Company
Less expenses
Sarbanes Oxley
Board of Directors (meetings and compensation)
Quarterly SEC filings
Costs of issuing stock
Maintain control
Can always sell the company if the owner wants to “cash out”
February 26, 2007
Materials Created by Glenn Snyder – San Francisco State University

9. Materials Created by Glenn Snyder – San Francisco State University
Management
In the end, it comes down to a management decision…
Does management believe it can make the debt obligations?
Does management want to retain control?
Does management want to “cash out”?
Many companies follow the industry sector
February 26, 2007
Materials Created by Glenn Snyder – San Francisco State University

10. Materials Created by Glenn Snyder – San Francisco State University
Raising Capital
Companies raise capital for many reasons:
Expansion
Internal Investment
Purchasing a new building
Purchasing new technology
Acquisition
Handle Seasonal Cash Flow Needs
Ski Resort in summer time
February 26, 2007
Materials Created by Glenn Snyder – San Francisco State University

11. Materials Created by Glenn Snyder – San Francisco State University
Raising Debt
Debt can be raised through Loans or Bonds
Loans are made through a commercial bank
Bonds are issued through investment banks
Loans would be used for smaller cash flow needs, as they carry higher yields
When issuing bonds, a Treasury Analyst would…
Do comps on similar issuances to determine maturity and rates
Analyze the overall after-tax impact
Match the financing to the investment time horizon
February 26, 2007
Materials Created by Glenn Snyder – San Francisco State University

12. Materials Created by Glenn Snyder – San Francisco State University
Raising Equity
Equity would be issued through an investment bank
The investment bank would help determine the price and quantity of the shares to be issued
The company would pay flotation costs to the investment bank for the issuance
The present ownership, if private, would receive cash in exchange for reducing ownership in the company
February 26, 2007
Materials Created by Glenn Snyder – San Francisco State University

13. Materials Created by Glenn Snyder – San Francisco State University
Dividend Policy
The Treasury Department is also responsible for the company’s dividend policy
Are dividends paid monthly, quarterly, semi-annually, or annually?
How much per share should be paid?
What is the impact to long-term cash flow?
What will be the impact on the long-term stock price?
February 26, 2007
Materials Created by Glenn Snyder – San Francisco State University

14. Who Should Issue Dividends?
Companies that are stable and have strong cash flows
Companies should be consistent within their sector to maintain competitiveness
Companies whose investment base is looking for income
Many seniors invest in Utilities for the dividend income
Start-ups and fast growing companies should not issue dividends
Investors will have a demand for the stock for its growth
Dividends create a cash flow obligation
February 26, 2007
Materials Created by Glenn Snyder – San Francisco State University

15. Dividend Impact to Stock Prices
Dividends increase the price of the stock when the announcement is made and reduces the stock price when the dividends are paid
One of the key ratios stock analysts look at when analyzing which stocks to buy is the dividend payout ratio
Dividend Payout Ratio
= Annual Dividends / Stock Price
February 26, 2007
Materials Created by Glenn Snyder – San Francisco State University

16. Materials Created by Glenn Snyder – San Francisco State University
Raising Dividends
A company has to be very careful when deciding to raise dividends
Typically dividend levels are very consistent so that owners will know how much they will receive
Raising dividends is a sign that the company has strong current and future cash flows
Raising dividends is usually a permanent increase
If the company does not want to permanently raise dividends, they can issue a special one time divided
February 26, 2007
Materials Created by Glenn Snyder – San Francisco State University

17. Career Advice for a Treasury Analyst
Understand Accounting
A strong background in accounting will help understand cash flow analysis and balance sheet impacts
Most Chief Treasury Officers are C.P.A.s
Treasury positions are often hard to find, but a career in accounting or banking would help
Other options would be to find a position within a finance department and transfer to the treasury group when a position becomes available
February 26, 2007
Materials Created by Glenn Snyder – San Francisco State University