Marketable Securities

Marketable securities are instruments that can be quickly and easily turned into cash. They are highly liquid because they usually have maturities of less than a year, meaning they can be bought or sold without drastically changing their price.

What are marketable securities?

Businesses keep cash on hand for unexpected opportunities or payments. Instead of letting all this cash sit in a bank account, earning little interest, companies invest some of it in short-term, liquid securities. This way, they can earn returns on their money while still having quick access to funds if needed.

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Characteristics of marketable securities

Marketable securities have several key features:

  • They mature in one year or less.
  • They can be bought or sold on public stock or bond exchanges.
  • They have a strong secondary market, ensuring they can be easily turned into cash and accurately priced.
  • They are different from cash or cash equivalents, which are even more liquid and less risky.

These features make marketable securities a good option for investors or companies that need quick access to their money and prefer lower-risk investments, even if the returns are lower than long-term investments like stocks.

Types of marketable securities

  1. Equity Securitiessome text
    • Common Stock and Preferred Stock: These are shares of publicly traded companies. If a company plans to sell these shares within a year, they are listed as current assets. If held for longer, they are non-current assets. Both are recorded at the lower of their cost or market value.
    • Shares bought to control another company are long-term investments, not marketable securities.
  2. Debt Securitiessome text
    • Short-term Bonds: These are issued by publicly traded companies and held by another corporation. If expected to be sold within a year, they are short-term investments. They are listed at cost on the balance sheet until sold, when any gain or loss is recognized.
    • If held for more than a year, these bonds are classified as long-term investments.

What are itemised deductions?

Wrapping up

Marketable securities are instruments that can be quickly converted into cash, making them useful for maintaining liquidity. They can be equity or debt instruments, typically maturing within a year and traded on public exchanges. Examples include Treasury notes, money market instruments, and common stock. By investing in marketable securities, companies can efficiently manage their cash while earning returns.

Fun fact about marketable securities

Did you know that the most liquid security is actually cash itself? But Treasury bills are considered the gold liquidity standard among marketable securities because the U.S. government backs them and has a very active secondary market. 

So, they're almost as good as cash in terms of liquidity.

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