US companies that are able to forecast their cash needs enjoy significantly greater investment yields than firms who have no forecasting methodology. Or so claim there authors of the 2004 Corporate Liquidity Survey, published on Friday by consultants Treasury Strategies.
According to the survey, firms who forecast cash realized 30 basis points of added portfolio return over those that do not forecast. David Robertson, a partner of Treasury Strategies, says the forecast findings are profound.
“Developing a good forecasting program is difficult for most firms, but our findings clearly illustrate how valuable it can be,” he says. “A corporate investor with a portfolio of $50 million would gain $150,000 of added return per year.”
The study reveals that 50% of all firms use a formalized forecasting model or process, which in turn produces superior investment returns.
In other surprising findings, only two-thirds of all companies surveyed have a documented investment policy, and only half benchmark their portfolio performance against external standards. Both practices would be important components of a response to the Sarbanes-Oxley Act.
“These findings are consistent with what we see in our consulting work with corporate treasurers,” says Robertson. “Better forecasting is a high priority for many treasurers, as is ensuring strong financial controls and processes.”
The 2004 Corporate Liquidity Survey was conducted to study the portfolio structure and investment habits of middle market and large corporations.
Founded in 1982, Treasury Strategies is an independent management consulting firm specializing in treasury and financial management. The firm, which has offices in Chicago and New York, advises multinational corporations and financial institutions on treasury and working capital management strategies, processes, products, delivery and tactics.