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. 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.