Marketable Securities

Short-term securities that are easily liquidated.

What are Marketable Securities?

Marketable securities are unrestricted short-term financial instruments that are issued either for equity securities or for debt securities of a publicly listed company. The issuing company creates these instruments for the express purpose of raising funds to further finance business activities and expansion. Governments also issue debt securities of this type in the form of T-bills, for funding of public projects and expenditures.

 

Marketable Securities Shown on a Screen

 

Characteristics of marketable securities

Investors are more eager to grab this type of investment because of the maturity periods, which tend to be less than a year. Converting or liquidating these investments into cash are much easier than other longer-term securities.

Marketable securities are characterized by:

  • A maturity period of 1 year or less
  • The ability to be bought or sold on a public stock exchange or public bond exchange
  • Have a strong secondary market that can speed up buy and sell transactions, as well as render an accurate price valuation for investors
  • Have higher liquidity, resulting in less risk
  • NOT cash and equivalents (money market securities due within 3 months)

Naturally, investments in marketable securities will depend on the investment strategy of the investor or the firm. Marketable securities will often have lower returns compared to longer-period or open-ended investments, such as stocks. Since the marketable security is only held for a year or less, there is a lower maturity risk and liquidity risk built into the product.

 

Accounting for marketable securities

Short-term liquid securities can be classified differently when it comes to their accounting.

There are three different classifications of marketable securities:

  1. Available for sale
  2. Held for trading
  3. Held to maturity

These classifications are dependent on certain criteria, but also on the history of transactions any given investor or firm have conducted with their past accounting practices.

 

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Example from Amazon’s balance sheet

When performing financial analysis it’s important to know how to incorporate these types of short-term liquid investments.  These investments will be listed under Current Assets on the balance sheet because they are due within a year, but will not be considered as part of Cash and Equivalents because they can consist of equity securities and/or fixed-income securities that mature in more than 3 months.

Here is an example of Amazon.com’s balance sheet:

Amazon Balance Sheet - Marketable Securities
Source: Amazon.com

 

Additional resources

Thank you for reading CFI’s guide to understanding the nature of how companies report their short-term liquid investments.

To keep learning and advancing your career as a financial analyst, these resources will help you on your way: