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Cash & Liquidity Management
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Liquidity Management in Turbulent Times

by Jim Negus, Partner, US Bank Finance, Treasury and Capital Markets Practice, KPMG

Given today’s turbulent global economy, external directors increasingly ask executives to demonstrate the company’s ability to remain viable and liquid. The renewed ‘call to action’ is largely driven by a strong deterioration in global markets fuelling significant funding cost increases and unprecedented investment and capital losses.

While leading companies have successfully managed liquidity in prosperous times, the current market compels management and directors to take a fresh look at liquidity risk management practices – in particular continued access to credit markets, key cash flow assumptions, what-if analysis, and contingency planning.

Liquidity management defined

Liquidity management is a concept broadly describing a company’s ability to meet financial obligations through cash flow1, funding activities, and capital management. Liquidity management can be challenging as it is impacted by revenue and cost generating activities, capital and dividend plans, and tax strategies. Additionally, it is closely linked to broader market, credit and general business risks.

Board focus

Given the sheer volume and magnitude of organisational failures experienced in 2008 and 2009, liquidity management has become a frequent agenda item at leading board and Audit Committee meetings. While each company is unique, board requests have typically focused on renewed liquidity transparency and governance. In addition the amendments to the Companies Act require the board to consider these aspects.