What are 'Short-Term Investments'
Short-term investments are part of the account in the current assets section of a company's balance sheet. This account contains any investments that a company has made that is expected to be converted into cash within one year. For the most part, these accounts contain stocks and bonds that can be liquidated fairly quickly.
BREAKING DOWN 'Short-Term Investments'
Most companies in a strong cash position have a short-term investments account on the balance sheet. This means that a company can afford to invest excess cash in stocks and bonds to earn higher interest than what would be earned from a normal savings account.
Short-term investments are also known as temporary investments. These typically include marketable equity and debt securities as well as short-term paper. Since the investments are very liquid, it is typically right below the cash and equivalents on a company's balance sheet .
There are two basic requirements for a company to classify an investment as short-term. First, it must be liquid. An equity listed on a major exchange that frequently trades is qualified. U.S. Treasury securities are also very liquid. Second, the management must intend to sell the security within 12 months. A bond that matures within that time frame is also included.
Breaking Down Short-Term Investments
Marketable equity securities includes investments in common and preferred stock. An example of marketable debt securities is a bond in another company. These can be short-term and should be actively traded to be considered liquid. Short-term paper have original maturities that are less than 270 days, such as U.S. Treasury bills and commercial paper.
As of March 31, 2016, Microsoft Corporation (NASDAQ: MSFT) had $98.3 billion of short-term investments on its balance sheet. The biggest component was U.S. government and agency securities, which was $81.6 billion. This was followed by corporate notes/bonds ($6.6 billion), mortgage/asset-backed securities ($4.7 billion) and foreign government bonds ($5 billion). Municipal securities were $332 million, and certificates of deposit (CDs)were worth $146 million.
Apple Inc. (NASDAQ: AAPL) held short-term investments, which it refers to as marketable securities, of $33.8 billion as of March 31, 2016. The two major investment were corporate securities, which represented $15.6 billion, and U.S. Treasury/agency securities, which were $13.3 billion. The company's investment in commercial paper was worth $1.8 billion and mutual funds were $1.6 billion. Apple also had non-U.S. government securities of $696 million and certificates/time deposits of $660 million. Mortgage/asset-backed securities, at $83 million, and municipal securities, at $72 million, round out its short-term investments.