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. 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 .

Requirements

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.

Examples

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.

RELATED TERMS
  1. Cash Equivalents

    Cash equivalents are investment securities that are convertible ...
  2. Long-Term Investments

    An account on the asset side of a company's balance sheet that ...
  3. Debt Security

    A debt security is an instrument bought or sold between two parties ...
  4. Security

    A security is a fungible, negotiable financial instrument that ...
  5. Cash And Cash Equivalents - CCE

    An item on the balance sheet that reports the value of a company's ...
  6. Fixed-Income Security

    A fixed income security is an investment that provides a return ...
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

    How To Read Apple's Balance Sheet

    We explain how to find, read, and analyze a balance sheet from Apple.
  3. Investing

    The Money Market

    The money market provides a relatively stable place to park capital that may be needed within a short time horizon.
  4. 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.
  5. 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.
  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

    Understanding Financial Liquidity

    Understanding how this measure works in the market can help keep your finances afloat.
  8. Investing

    Bond Funds Boost Income, Reduce Risk

    Bond funds can provide stable returns for those who depend on their investment income.
  9. Investing

    How To Choose The Right Bond For You

    Bond investing is a stable and low-risk way to diversify a portfolio. However, knowing which types of bonds are right for you is not always easy.
  10. Investing

    Charles Schwab: Short-Term Investments a Way to Play Rising Rates

    Bond investors focused on the short term could benefit from rising interest rates, says Charles Schwab.
RELATED FAQS
  1. Which financial instruments have par values?

    Understand the difference between short-term investments and marketable equity securities, and learn the importance of short-term ... Read Answer >>
  2. 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 >>
  3. 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 >>
  4. What are some examples of securities that can be found in a money market fund?

    Learn about examples of securities found in money market accounts. These securities need to be safe, liquid and of short-term ... Read Answer >>
  5. 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 >>
  6. How can central banks use open market operations to manipulate short-term interest ...

    Discover how central banks use open market operations to manipulate short-term rates. Short-term rates are key inputs into ... Read Answer >>
Hot Definitions
  1. Initial Public Offering - IPO

    The first sale of stock by a private company to the public. IPOs are often issued by companies seeking the capital to expand ...
  2. Cost of Goods Sold - COGS

    Cost of goods sold (COGS) is the direct costs attributable to the production of the goods sold in a company.
  3. Profit and Loss Statement (P&L)

    A financial statement that summarizes the revenues, costs and expenses incurred during a specified period of time, usually ...
  4. Monte Carlo Simulation

    Monte Carlo simulations are used to model the probability of different outcomes in a process that cannot easily be predicted ...
  5. Price Elasticity of Demand

    Price elasticity of demand is a measure of the change in the quantity demanded or purchased of a product in relation to its ...
  6. Sharpe Ratio

    The Sharpe ratio is the average return earned in excess of the risk-free rate per unit of volatility or total risk.
Trading Center