Corporate Treasury & Financial Management Vocabulary

Vocabulary flashcards covering key terms from Chapters 5–12 on working capital, debt, equity, investment, FX, interest-rate, clearing, and treasury management.

Working Capital Management

Strategic process of managing current assets and current liabilities to ensure adequate liquidity for daily operations.

Current Assets

Short-term resources expected to be converted into cash within one year (e.g., cash, receivables, inventory).

Cash & Cash Equivalents

Most liquid assets such as money-market accounts, T-bills, CDs, and commercial paper.

Money Market Account

Interest-bearing deposit that offers limited check-writing and invests in short-term instruments.

Treasury Bill (T-bill)

Short-term U.S. government security with maturities up to one year, sold at a discount.

Certificate of Deposit (CD)

Time deposit issued by a bank with a fixed maturity and interest rate.

Commercial Paper

Unsecured promissory note issued by corporations to finance short-term needs.

Accounts Receivable (AR)

Money owed to a company by its customers for goods or services sold on credit.

Inventory

Goods held for sale or production, classified as raw materials, work-in-progress, or finished goods.

FIFO (First-In, First-Out)

Inventory valuation method assuming earliest items purchased are sold first.

LIFO (Last-In, First-Out)

Inventory valuation method assuming most recent items purchased are sold first.

Current Liabilities

Obligations due within one year, such as accounts payable and short-term debt.

Accounts Payable (AP)

Amounts a company owes to suppliers for goods or services received.

Cash Management

Process of optimizing liquidity while minimizing idle cash balances.

Cash-Flow Forecasting

Estimating future cash inflows and outflows to anticipate funding needs.

Bank Relationship Management

Maintaining and negotiating services, pricing, and credit lines with banks.

Credit Management

Establishing and enforcing policies governing extension of trade credit to customers.

Just-In-Time (JIT) Inventory

Inventory strategy that minimizes holdings by ordering materials only as needed.

Loose Credit Policy

High-risk, low-interest-rate policy offering flexible payment terms to customers.

Tight Credit Policy

Low-risk, high-interest-rate policy with strict payment terms and screening.

Material Requirements Planning (MRP)

Forecast-driven system that schedules inventory purchases to prevent stockouts.

Economic Order Quantity (EOQ)

Formula that determines the optimal order size to minimize total inventory cost.

Days Sales of Inventory (DSI)

Liquidity metric showing average days needed to sell inventory.

Creditworthiness Screening

Assessment of a customer's ability to repay before granting credit.

Lockbox System

Service where customer payments are sent to a bank-managed post office box for accelerated collection.

Inventory Turnover

Number of times inventory is sold or used during a period; COGS ÷ Average Inventory.

Days Working Capital (DWC)

(AR + Inventory – AP) ÷ Daily Sales; measures efficiency of working capital usage.

Operating Cycle

Sum of Days Inventory and Days Receivables; time from purchasing inventory to collecting cash.

Working Capital (WC)

Current Assets minus Current Liabilities; indicator of short-term liquidity.

Cash Conversion Cycle (CCC)

DSI + Average Collection Period – Average Payment Period; measures time cash is tied up in operations.

Debt Management

Planning and controlling a firm’s borrowing to maintain solvency and minimize cost of capital.

Factoring

Sale of accounts receivable to a third party at a discount for immediate cash.

Field Warehouse Loan

Loan collateralized by inventory stored in a controlled warehouse facility.

Floor Planning

Short-term financing for high-value inventory such as automobiles or appliances.

Term Loan

Long-term bank loan with fixed repayment schedule and interest rate.

Bond

Tradable debt security obligating issuer to pay periodic interest and principal at maturity.

Lease

Contract allowing use of an asset in exchange for periodic payments without transferring ownership.

Sale-Leaseback

Transaction where a company sells an asset and immediately leases it back to retain use while raising cash.

Credit Rating

Independent assessment of a borrower’s default risk issued by agencies like S&P, Moody’s, Fitch.

Prime Rating (AAA/Aaa)

Highest credit rating, indicating extremely low default risk.

Non-Investment-Grade (Junk)

Rating below BBB-/Baa3 (e.g., BB+), signifying speculative credit quality.

Budget Restructuring

Aligning debt repayment schedules with anticipated cash flows to ease liquidity pressure.

Refinancing

Replacing existing debt with new debt at a lower interest rate or better terms.

Bangko Sentral ng Pilipinas (BSP)

Central bank of the Philippines responsible for monetary policy and payment system oversight.

National Economic and Development Authority (NEDA)

Philippine government agency that coordinates macroeconomic development planning.

Debt Ratio

Total Debt ÷ Total Assets; measures leverage level.

Interest Coverage Ratio

EBIT ÷ Interest Expense; evaluates ability to meet interest obligations.

Shareholders’ Equity

Share Capital + Retained Earnings – Treasury Shares; residual interest of owners in a company.

Allocated Equity

Equity recorded in specific shareholders’ accounts, such as common stock or equity credits.

Unallocated Equity

Equity not yet assigned to individual shareholders, e.g., unissued shares.

One Person Corporation (OPC)

Philippine corporate entity with a single stockholder who is both President and Director.

Investment Management

Professional supervision of financial assets to meet specified investment goals.

Asset Allocation

Process of dividing investments among asset classes based on risk and return objectives.

Earning Credit Strategy

Maintaining higher bank balances to earn credits that offset service fees.

Laddering Strategy

Investing in instruments with staggered maturities to balance yield and liquidity.

Matching Strategy

Timing investment maturities to coincide with known future cash outflows.

Tranched Cash Flow Strategy

Segregating cash flows into segments matched with differing risk/return or timing needs.

Safety of Principal

Investment criterion emphasizing preservation of original capital.

Held-to-Maturity Security

Debt investment a firm intends and is able to hold until maturity; reported at amortized cost.

Held-for-Trading Security

Investment bought for short-term resale; carried at fair value with gains in income.

Available-for-Sale Security

Debt/equity investment held for indefinite period; fair value changes recognized in income (post-FASB 2016-01).

Equity Method

Accounting for 20–50% ownership whereby investor recognizes proportional share of investee’s profits.

Foreign Exchange (Forex)

Global marketplace for exchanging national currencies, averaging $6.6T daily turnover.

Base Currency

First currency in a pair, representing one unit being priced.

Quote Currency

Second currency in a pair, representing amount needed to buy one unit of base currency.

Transaction Risk

FX exposure arising from time gap between contract and settlement of a transaction.

Translation Risk

Exposure from converting financial statements of foreign subsidiaries into parent currency.

Economic Risk

Long-term impact of currency movements on a company’s market competitiveness.

Natural Hedging

Offsetting currency inflows and outflows within operations to reduce FX exposure.

Forward Contract

Custom OTC agreement to buy or sell currency at a fixed rate on a future date.

Currency Futures

Standardized contract traded on an exchange to buy or sell currency at future date and price.

Currency Option

Right, but not obligation, to buy (call) or sell (put) currency at a specified rate before expiry.

Currency Swap

Agreement to exchange principal and interest payments in different currencies.

Value at Risk (VaR)

Statistic estimating maximum expected loss over a period at a given confidence level.

Cash Flow at Risk (CFaR)

Measure estimating potential short-term adverse cash flow movements due to market changes.

Earnings at Risk (EaR)

Metric assessing potential reduction in earnings from market risk exposure.

Forward Points

Adjustment added to spot rate to arrive at forward rate, reflecting interest rate differential.

Interest Rate

Percentage charge for borrowing money, expressed annually on the principal amount.

Interest Rate Risk

Potential for investment value to change due to unexpected interest rate movements.

Yield to Maturity (YTM)

Total return anticipated on a bond if held until maturity, factoring price, coupon, and time.

Repricing Risk

Risk arising from timing differences in rate changes between assets and liabilities.

Yield Curve Shift Risk

Potential loss from non-parallel movements in the term structure of interest rates.

Option Risk (Embedded)

Risk that borrowers or investors alter cash flows via options such as calls or prepayments.

Basis Risk

Risk that interest rates on linked instruments move differently despite similar reset frequencies.

Interest Rate Swap

Contract to exchange fixed-rate payments for floating-rate payments, or vice versa.

Swaption

Option granting right to enter into a specified interest rate swap at a future date.

Gross Settlement

Real-time settlement of each payment individually without netting.

Net Settlement

Aggregated settlement of multiple payments, with only net differences transferred.

Automated Clearing House (ACH)

Electronic network for batch processing low-value, high-volume payments (e.g., payroll).

Real-Time Gross Settlement (RTGS)

System settling high-value payments individually and immediately in central bank funds.

PhilPaSS

Philippine RTGS system operated by BSP for large-value payments.

Check Image Clearing System (CICS)

Digital process for clearing checks through electronic image exchange.

Continuous Linked Settlement (CLS)

Global multicurrency FX settlement system eliminating settlement-delivery risk.

Treasury Management System (TMS)

Integrated software platform handling cash, risk, debt, and investment activities of treasury.

SWIFT

Secure messaging network enabling standardized financial communication between institutions.

Budget & Treasury Management System (BTMS)

Philippine government platform integrating budget, cash, and fiscal reporting processes.