CompanyGraph
Captures liquid financial assets expected to convert to cash within a year, exposing the company's near-term capital reserves beyond pure cash holdings.
Short-term investments are liquid assets the company expects to convert to cash within one year, such as treasury bills or short-term bonds.
Short-term investments, also called marketable securities or temporary investments, represent liquid financial assets that a company intends to hold for less than one year. These investments typically include government securities, corporate bonds, and other instruments that earn returns on excess cash while maintaining reasonable liquidity. They appear as current assets on the balance sheet.
Common short-term investment types:
- Treasury notes and bonds: US government securities
- Corporate bonds: Investment-grade company debt
- Certificates of deposit: Bank time deposits over 90 days
- Commercial paper: Longer-term corporate debt instruments
- Municipal bonds: State and local government securities
- Money market instruments: Various short-term debt securities
Accounting treatment:
- Available-for-sale: Marked to market; unrealised gains/losses in other comprehensive income
- Held-to-maturity: Carried at amortised cost
- Trading securities: Marked to market; gains/losses in income statement
Why short-term investments matter:
- Liquidity reserve: Provides near-cash buffer beyond immediate operating needs
- Yield enhancement: Earns returns on excess cash
- Total liquidity: Cash plus short-term investments shows total liquid resources
- Investment policy: Reflects management's risk tolerance and cash strategy
Analysing short-term investments:
- Composition: What types of securities? Higher risk = higher potential return but more volatility
- Credit quality: Investment grade vs. speculative
- Duration: Sensitivity to interest rate changes
- Unrealised gains/losses: Market value vs. carrying value
Total liquid resources:
Total Liquidity = Cash and Cash Equivalents + Short-term Investments
Important considerations:
- Interest rate risk: Bond values fall when rates rise
- Credit risk: Corporate bonds carry default risk
- Liquidity risk: Some securities may be harder to sell quickly
- Opportunity cost: Cash in investments isn't funding operations or growth
Evaluate short-term investments alongside cash to understand total liquidity. Companies with large investment portfolios have financial flexibility but may face questions about capital deployment if excess cash isn't being invested productively in the business.