Marketable Securities

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What are 'Marketable Securities'

Marketable securities are financial instruments that are very liquid and can be quickly converted into cash at a reasonable price. The liquidity of marketable securities comes from the fact that the maturities tend to be less than one year, and that the rates at which they can be bought or sold have little effect on prices. Examples of marketable securities include commercial paper, banker's acceptances, Treasury bills and other money market instruments.

BREAKING DOWN 'Marketable Securities'

Marketable securities are defined as any unrestricted financial instrument that can be bought or sold on a public stock exchange or a public bond exchange. Therefore, marketable securities are classified as either a marketable equity security or a marketable debt security. Other requirements of marketable securities include having a strong secondary market that can facilitate quick buy and sell transactions, and having a secondary market that provides accurate price quotes for investors. The return on these types of securities is low, due to the fact that marketable securities are highly liquid and are considered safe investments.

Marketable Equity Securities

Marketable equity securities can be both common stock or preferred stock. They are equity securities of a public company held by another corporation, and are listed on that holding company's balance sheet. If the stock is expected to be liquidated or traded within one year, the holding company will list it as a current asset. Conversely, if the company expects to hold the stock for longer than one year, it will list the equity as a non-current asset. All marketable equity securities, both current and non-current, are listed at the lower value of cost or market.

If, however, a company invests in another company's equity in order to acquire or control that company, the securities aren't considered marketable equity securities. The company instead lists them as a long-term investment on its balance sheet.

Marketable Debt Securities

Marketable debt securities are considered any short-term bond issued by a public company held by another company. Marketable debt securities are normally held by a company in lieu of cash, so it's even more important that there is an established secondary market. All marketable debt securities are held at cost on a company's balance sheet as a current asset, until a gain or loss is realized upon the sale of the debt instrument.

Marketable debt securities are held as short-term investments and are expected to be sold within one year. If a debt security is expected to be held for longer than one year, it should be classified as a long-term investment on the company's balance sheet.