ACCA Financial Management (F9) Certification Practice Exam

What function of treasury management focuses primarily on managing a company’s cash flow?

1. Liquidity management

2. Debt management

3. Risk management

4. Investment management

The correct answer is: Liquidity management

The function of treasury management that focuses primarily on managing a company’s cash flow is liquidity management. This area is concerned with ensuring that a company has sufficient cash on hand to meet its short-term obligations as they arise. Effective liquidity management involves forecasting cash flows, monitoring cash balances, and optimizing the timing of cash inflows and outflows to maintain liquidity. Liquidity management addresses how much cash is available at any given time and how to allocate resources efficiently to meet operational needs without disrupting business activities. It ensures that the organization can cover its short-term liabilities, such as payroll, suppliers, and other immediate expenses, while also planning for unexpected costs. The other functions mentioned—debt management, risk management, and investment management—play important roles in treasury, but they do not focus primarily on cash flow. Debt management involves handling a company's financing strategies and obligations; risk management focuses on identifying and mitigating financial risks; and investment management pertains to the management of long-term assets and returns on investments. Each of these functions has its unique objectives and does not concentrate specifically on maintaining or optimizing cash flow in the same way that liquidity management does.