- Sleiman El Homsi
- Treasurer
The creation of sustainable shareholder value is widely recognised as the foremost corporate objective. Here, Sleiman El Homsi, Treasurer, examines how this can be accomplished and, just as importantly, retained.
Shareholder value is, simplified, achieved by generating resilient and growing future cash flows that meet and ideally exceed the risk‑adjusted return expectations of shareholders, factoring in the nature of the business and the markets in which it operates.
Treasury sits at the heart of this value equation, with influence over two fundamental levers: the free cash flows ultimately available to investors, and the risk and funding decisions that determine the discount rate applied to those cash flows.
Through effective capital structure and WACC optimisation, dividend policy design, working capital efficiency, financial risk management, and the strengthening of governance and operational resilience, treasury can earn a seat at the table by moving beyond execution into stewardship. Thus creating value, preventing leakage, and sustaining confidence so that long-term value is generated by the business and delivered to shareholders.
Capital structure
Capital structure optimisation is funding optionality at an efficient cost, not leverage for its own sake. WACC may seem theoretical, but, for treasury, it is a practical scorecard of funding efficiency and perceived risk. The cost of debt reflects credit risk while cost of equity reflects investor expectations, which are influenced by return volatility.
Investors supply capital because they expect to be compensated for risk. Shareholder value is therefore created when a company invests in projects whose risk‑adjusted returns exceed the hurdle rate.
Treasury does not pick projects, but it can improve the quality of capital allocation decisions by ensuring discount rates, funding assumptions, and liquidity implications are grounded in reality. It can also indirectly influence cost of equity by reducing cash flow volatility through better risk governance and transparency.
Two value traps sit at the extremes: excess equity that dilute returns, and leverage that amplifies default risk. Value sits in the middle, where the balance sheet is efficient but robust, enabling the company to invest ‘through-the-cycle’.
Excess leverage can destroy value by raising distress probability, tightening covenants, and restricting strategic flexibility, leading investors to demand a higher risk premium. Debt can be value‑accretive but only if certain conditions are met, namely when there is a tax shield benefit and when capital is deployed into positive net present value (NPV) uses that exceed cost of capital.
A common tension is the difference between minimising WACC and protecting funding access. Treasury’s job is to quantify these trade‑offs and recommend a structure that is efficient in normal markets but survivable in stressed ones.
The focus is on financial flexibility: diversified funding sources, committed credit lines, an actively managed maturity ladder, and clear covenant headroom triggers. Executed properly, this optimises cost of capital by avoiding structural vulnerabilities that could force value-dilutive decisions.
Dividend policy
Dividend predictability is a function of effective liquidity architecture. It is underpinned by accurate forecasting, sufficient buffers, and robust refinancing plans. Treasury’s contribution is to make affordability explicit.
A dividend is only ‘cheap’ if it can be sustained through stress without compromising liquidity, covenants, or core investment. A fit‑for‑purpose dividend policy, therefore, balances shareholder distributions with retention, enabling attractive returns while safeguarding credit strength and funding of strategic growth.
Working capital
Working capital optimisation is a direct shareholder value lever because it lifts free cash flow immediately. Releasing trapped cash reduces borrowing needs, lowers interest expense, and creates capacity to reinvest or return cash to shareholders.
Treasury adds value by converting operational improvements into usable liquidity: partnering with commercial and finance teams to optimise processes, collections, and payment terms; enhancing visibility and cash concentration to maximise available liquidity; and tracking CCCs to calibrate cash velocity. Tools such as SCF can be deployed selectively where economics make sense.
The ‘plumbing’ still merits attention: rationalised bank account structures, strong bank connectivity, and robust pooling mechanisms are not glamorous projects, but they often determine whether cash can be mobilised when it matters.
Risk governance
Investors and lenders demand higher returns when cash flows are volatile or uncertain. Identifying where unnecessary risk premia are embedded – in spreads, buffers, or operational workarounds – highlights opportunities to convert cost into value by improving control and resilience.
Treasury can create value by improving predictability and reducing tail risk, thereby lowering risk premia embedded in credit spreads and equity returns. Counterparty limits and cash flow scenario analysis reduce the chance that a market dislocation turns into a funding incident.
A disciplined risk cycle begins with identifying and quantifying exposures, stress‑testing them across scenarios, defining permitted instruments and hedge tenors, and continuously monitoring compliance and effectiveness. The focus here is affordability and predictability, not opportunistic profit.
Resilience, though, extends beyond market risk. Manual payment processes, weak segregation of duties, and untested continuity plans can rapidly destroy value through financial losses, covenant breaches, and lasting reputational damage. Close alignment with enterprise risk management (ERM) on these risks elevates treasury from a transactional function to an enterprise value‑driving partner.
The simple principle
Value creation is often incremental while value destruction is often sudden. Treasury’s shareholder value contribution is simple in principle: improve the quality and usability of cash flows and reduce the risk premia the market charges.
Capital structure optimisation, dividend sustainability, working capital liberation, risk governance, and operational resilience are interconnected levers that shape enterprise value and the capacity to drive growth.
