Liabilities, Liquidity, and Cash Management: Balancing Financial Risks

In all fields of inquiry, whether financial, scientific, or any other, there is danger of not seeing the woods for the trees. Nowhere is this danger greater than in the analysis of assets and liabilities as well as in cash management, in a leveraged financial environment with derivative instruments that change from assets to liabilities, and vice versa, depending on their fair market value. This book is for financial officers, analysts, traders, investment advisors, loans officers, accountants, and auditors whose daily activities are affected by the management of liabilities and the control of exposure. Senior executives have expressed the opinion that, for the next 10 years, the key words are: leverage, profitability, cash flow, liquidity, inventories, sales growth, and company size. Many senior managers and financial analysts are of the opinion that, at the dawn of the twentyfirst century, in an environment charged by credit risk, there have occurred some incidents that, although important in themselves, were even more important as part of a pattern of uncertainty and nervousness in the financial markets. Suddenly, and emotionally, earning announcements and profit warnings made investors and traders commit all their attention to stock market bears, as if in a highly leveraged environment this were a secure way of taking care of their liabilities. The underlying thesis among many of the knowledgeable people who participated in my research is that at the present time, there is an overriding need for a focused process of liabilities management. The separate aspects of this problem acquire full significance only when considered in relation to one another, in an integrative way. Since a rigorous study of financial exposure is best done through pooled experience, it is clear that the acquisition, organization, and use of knowledge are essential factors in analysis. This process of meticulous acquisition, proper organization, and use of knowledge is often called the scientific method:
Reaching conclusions against experience, through observation and experiment
Operating on the principle of increasing certitude in regard to obtained results
Being able, in large measure, to take effective action and proceed to new subjects of inquiry

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