7
Citi Perspectives
| Q1/Q2 2015
teams with more control over
the levers to change Days Sales
Outstanding and Days Payables
Outstanding, improving cash
conversion cycles. When payment
terms are extended, supply chain
financing provides support to
vendors, who may be smaller and
more credit-challenged than their
multinational corporate buyers. It
is clear that more companies are
deploying these approaches:
In Citi’s Treasury Diagnostics
benchmarking survey, 34% of large
corporates surveyed are using supplier
financing solutions today, compared
with only 21% five years ago.
2
By taking these actions, treasurers
can free cash trapped in the
balance sheet and deliver tangible
shareholder value.
Integrating regulatory changes
into treasury structures
Country capital controls drive
whether and how local markets’
cash and funding activity can be
integrated into the company’s global
treasury structure. China especially
stands out with regard to opportunity.
Despite the recent slowdown, it will
continue to be a major growth market
for many multinationals. Meanwhile,
regulatory reforms and the
internationalization of the renminbi
have fundamentally altered what
companies can achieve in treasury
management. Multinationals can
now centralize nationwide payments
and collections processes in China,
concentrate domestic cash and link
this to their global liquidity pools, and
use netting and reinvoicing structures
to centralize FX risk management
into their global in-house banks.
2
Citi Treasury Diagnostics 2015.
Figure 2: Treasury Centralization Delivers Tangible Shareholder Value
*
10% higher
Tobin’s Q
Market valuation of a company’s existing assets
Value Creation
Cost Reduction
5% lower
Cash-to-Market Value ratio
Reduction in cash burden
Operating Efficiency
1.44% higher
Return on Asset
Operational return (before leverage)
*INSEAD analysis of data from Citi Treasury Diagnostics
