Loading the player...

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.

RELATED TERMS
  1. Cash Equivalents

    Cash equivalents are investment securities that are convertible ...
  2. Short-Term Gain

    A short-term gain is a capital gain realized by the sale or exchange ...
  3. Investment Securities

    Investment securities are securities (tradable financial assets ...
  4. Short-Term Loss

    A short-term loss is any asset sold at a loss that's been held ...
  5. Paper Dealer

    A paper dealer is a market maker that buys and sells extremely ...
  6. Commercial Paper

    Commercial paper is an unsecured debt instrument issued typically ...
Related Articles
  1. Retirement

    Money Market vs. Short-Term Bonds: A Compare and Contrast Case Study

    Discover characteristics of money market and short-term bonds, including how the investments are alike and different, and the benefits and risks each offers.
  2. Investing

    4 Popular Short Term Bond ETFs in 2016 (BSV, SHY)

    Find out which short-term bond exchange-traded funds (ETFs) are the most popular going into 2016, based on assets under management.
  3. Investing

    The 3 Largest Short-Term Bond ETFs (BSV, SHY)

    Discover vehicles used by the three largest short-term bond ETFs to generate yield, including corporate, sovereign, supranational and Treasury debt.
  4. Investing

    3 Best High-Yielding Short-Term Bond Mutual Funds

    Learn about the three best high-yielding short-term bond mutual funds and how your portfolio can potentially benefit from investing in them.
  5. Investing

    The Top 5 Short-Term Bond Funds for 2016

    Learn how short-duration bonds can add value to an asset allocation strategy, and discover the top five short-term bond funds for 2016.
  6. Investing

    Best Strategy for Short-Term Savings Goals

    For the best return when you have short-term savings goals, consider bonds. They're less risky than stocks and earn more than a bank savings account.
  7. Investing

    Reading the Balance Sheet

    Learn about the components of the statement of financial position and how they relate to each other.
  8. Investing

    3 Safest Fixed-Income ETFs of 2016 (VCSH, BSV)

    Learn about the investment profiles of three very safe fixed-income ETFs and discover why they are all excellent ways to invest in the asset class.
RELATED FAQS
  1. Does working capital include short-term debt?

    Learn about a company's working capital and how short-term debt is considered part of current liabilities and is included ... Read Answer >>
  2. What's the difference between short-term investments in marketable securities and ...

    Most of the time, when an investor or analyst searches through the financial statements of a publicly traded company, he ... Read Answer >>
  3. Where Do Companies Keep Their Cash?

    Cash and cash equivalents are the first items on a company's balance sheet, but they are not same. Read Answer >>
  4. What determines the interest rate on my money market account?

    Placing funds in a money market account may provide a higher interest rate than a savings account due to the underlying securities ... Read Answer >>
  5. Why is debt issued in both temporary and permanent forms?

    Debt is separated into two categories: 1) Temporary or short-term 2) Permanent or long-term. Temporary or short-term debt ... Read Answer >>
Hot Definitions
  1. Intrinsic Value

    Intrinsic value is the perceived or calculated value of a company, including tangible and intangible factors, and may differ ...
  2. Current Assets

    Current assets is a balance sheet account that represents the value of all assets that can reasonably expected to be converted ...
  3. Volatility

    Volatility measures how much the price of a security, derivative, or index fluctuates.
  4. Money Market

    The money market is a segment of the financial market in which financial instruments with high liquidity and very short maturities ...
  5. Cost of Debt

    Cost of debt is the effective rate that a company pays on its current debt as part of its capital structure.
  6. Depreciation

    Depreciation is an accounting method of allocating the cost of a tangible asset over its useful life and is used to account ...
Trading Center