Based on their short-term investment policy, the treasurer can effectively manage the short-term funds, including short-term investments, borrowings, etc.
There are sophisticated treasury management software available to do this. A treasury manager based on his needs, size of the funds, and complexity in the portfolio may decide to use a treasury software or simply do so using a spreadsheet software such as excel. For most small operations, excel sheets suffice. These spreadsheets can then be used for effective evaluation of the funds management in terms of effective yields on the investments, and the costs of borrowing.
There are a few things that must be kept in mind while maintaining this data, and generating performance reports.
- Record both the short-term investments and the borrowings
- Express the returns on investments as bond equivalent yields so that yields from different instruments can be compared.
- Calculate weighted average returns from the entire portfolio using investment amounts as the weights.
- Follow a consistent format
The following table shows a sample short-term funds performance report:
|Security||Dealer/Bank||Amount ($ ‘000)||Weight||Yield||Maturity|
|T-bills||XYZ Bank||50,000||50%||4%||90 days|
|Commercial Paper||Alpha Co.||25,000||25%||5%||45 days|
|Certificate of Deposit||Li Bank||25,000||25%||5.5%||30 days|
Weighted average yield: 4.625%
Benchmark yield: 4.5%
The treasurer will have a benchmark against which he will compare his fund’s performance. In this example, the fund has performed better than the benchmark.