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.

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Short-Term Investments

BREAKING DOWN Short-Term Investments

Most companies in a strong cash position have a short-term investments account on the balance sheet. As a result, the 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.

Requirements for Short-Term Investments

There are two basic requirements for a company to classify an investment as short-term. First, it must be liquid. Two examples are an equity listed on a major exchange that frequently trades is qualified and U.S. Treasury securities. Second, the management must intend to sell the security within 12 months. A bond that matures within that time frame is also included.

Marketable equity securities include 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.

Examples of Short-Term Investments

As of March 31, 2018, Microsoft Corporation (NASDAQ: MSFT) held $135 billion of short-term investments on its balance sheet. The biggest component was U.S. government and agency securities, which was $108 billion. This was followed by corporate notes/bonds worth $6.1 billion, foreign government bonds $4.7 billion and mortgage/asset-backed securities at $3.8 billion. Certificates of deposit (CDs) were worth $2 billion and municipal securities at $269 million.

As far as Apple Inc. (NASDAQ: AAPL), it held short-term investments, listed as marketable securities, of $254 billion as of March 31, 2018. The two major investments were corporate securities, which represented $138 billion, and U.S. Treasury/agency securities, which were $62.3 billion. The company's investment in commercial paper was worth $17.4 billion and mutual funds were $800 million. Apple also had non-U.S. government securities of $8.2 billion and certificates/time deposits of $7.3 billion. Mortgage/asset-backed securities were at $20 billion, and municipal securities at $973 million, rounded out its short-term investments.