Glossary of Treasury and FP&A Terms

Just like any profession, corporate finance has its own language. Check out common terms and definitions to get yourself familiar.

TREASURY TERMS  |   FP&A TERMS

Glossary of Treasury Technical Terms 

BOND RATING 

A quality rating that is assigned to a bond issue to reflect both the probability of default and the loss given default on the issue, in the opinion of the rating agency.

CASH POSITION

The quantity of cash that a company is holding at a given point in time.

HEDGING

The act of taking a financial position to reduce or offset the risk posed by another financial position. This risk management strategy is used to limit the probability of loss from changes in the prices of commodities, currencies, or securities. In active hedging, an organization uses various financial instruments to reduce or eliminate risks associated with uncertain future cash flows. In passive (or natural) hedging, an organization holds both assets and liabilities in the same currency so that fluctuations offset each other.

KNOW YOUR CUSTOMER (KYC)

The due diligence procedures that a financial institution must follow to determine or verify the identity of its customers. KYC is considered a key part of anti-money laundering compliance activities.

LIQUIDITY MANAGEMENT FLOWS 

Cash flows that are employed to use an organization’s liquidity reserves in the most effective manner. If there is a surplus of funds, treasury may either (1) invest them in suitable investments, or (2) pay down existing debt. Alternatively, if there is a shortage of funds, then treasury may either (1) sell off investments, or (2) draw on available debt sources (e.g., credit lines or commercial paper issuance).

MONEY MARKET

That part of the global financial market that deals with financial instruments that are easily converted to cash (highly liquid) and have very short maturities, typically one year or less. In addition, most money market instruments are debt-type securities, which are also known as fixed-income securities.

OPTIMAL CAPITAL STRUCTURE

The mix of long-term debt and equity that produces the lowest overall weighted average cost of capital for a firm. Also known as a target capital structure.

TARGET CASH BALANCE

The ideal amount of cash that a company wishes to hold in reserve at any given point in time. This figure hopes to strike a balance between the investment opportunity costs of holding too much cash and the balance sheet costs of holding too little.

WORKING CAPITAL 

The sum of a company’s current asset accounts (primarily cash, accounts receivable, and inventory) less the sum of its current liability accounts (primarily payables and accrual accounts). Also known as net working capital.

Glossary of FP&A Technical Terms 

AGILE

Agile software development is an approach to creating and implementing software through “collaboration between self-organizing, cross-functional teams utilizing the appropriate practices for their context.” Note that Agile (capital A) is an iterative approach to software development; agile (lowercase) describes business operations, including flexibility, responsiveness, and speed. They are overlapping but not identical concepts.  For software implementations such as FP&A planning systems, a 100% agile approach is not recommended (see guide for additional discussion).

API (APPLICATION PROGRAM INTERFACE)

The code that allows different systems to communicate (send, receive, or write) with each other.  Some software applications have pre-built APIs to connect to various source systems, while other APIs need to be custom built and maintained.

BUSINESS INTELLIGENCE (BI) VS BUSINESS ANALYTICS

There is not consensus on the definitions. BI are a set of tools that gather and present information, often visually, that explain what happened. Analytics explain why things happen, and may be more manual in order to dig into the answers. 

CLOUD VS ON-PREMISES COMPUTING

Traditionally, organizations have built data centers they own that contain the IT resources needed to achieve the organization’s objectives. For those companies where ownership of their IT infrastructure is not a source of competitive advantage, they have turned to the cloud. Cloud computing is the on-demand delivery of compute power, database storage, applications, and other IT resources through a cloud services provider via the internet with pay-as-you-go pricing (also referred to as SaaS—software as a service). 

DATABASE

A database is an organized collection of data through various objects, including schemas, tables, queries, reports, and views. The data are typically organized to model aspects of reality in a way that supports processes requiring information, such as modeling the availability of rooms in hotels in a way that supports finding a hotel with vacancies. 

DRIVER-BASED PLANNING

Driver-based budgeting and planning uses operational driver models to predict financial results using estimates of business driver values. These models are essentially equations that represent mathematical relationships between key operational drivers—such as volume, rates, utilization, conversion ratios, and brand awareness—and anticipated financial outcomes.

ERP

An integrated system of applications that share a database and interface. Modules may include accounting general ledger, inventory management, procurement, human capital management, and various reporting functions.

MACHINE LEARNING

ML is learning from data without being explicitly programmed. In supervised models, a target variable is provided and the model will identify other variables associated with the target. Examples of supervised models include classification (predict a categorical value) and regression (predict a numerical value). Examples of unsupervised models include cluster analysis (organize similar items into groups) and associative analysis (find rules that capture associations between items).

SANDBOX

For a planning solution, the concept of a sandbox refers to the ability to work with the system tools in a non-production environment. This is useful to develop and test models, perform “what-if” modeling, simulation, and scenario analysis around key business drivers in a separate version and/or area where the results can be compared to other versions.

STREAMING DATA

Data that is generated constantly by a data source.  Streaming data is different from static data that can be analyzed after collection.  Algorithms that are iterative or analyze a complete dataset can’t be used.