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Public Securities

Financial non-derivative instruments traded publicly

What are public securities?

Public securities, also known as a marketable securities, are debt or equity securities that are openly or easily traded in a market. In a previous article, classification of such investment methods was further discussed.

These securities are either equity or debt-based. An equity security is an investment based on the equity of a company. A debt security is an investment based on the debt of a company or entity.

 

Public Securities

 

The investor must have little or no influence over the investee to classify an investment as a public or marketable security. In other words, the company or person purchasing these investments must have no controlling interest in the company they are investing in. If control or influence does exist, then the investment may be classified as a private investment rather than a marketable security.

 

How are these investments treated in accounting?

In general, these investments can be classified in an investor’s accounting as either held-to-maturity (HTM), available-for-sale (AFS) or held-for-trading (HFT). The accounting classification is selected by the investor, but should also be dictated by their history of investments.

Each of these three types has classification criteria as outlined below:

Held-to-maturity

  • Only for debt investments
  • Ability and intent of investor to hold until maturity
  • Most likely held as a non-current asset
  • Interest received is shown on the income statement

Available-for-sale

  • Either equity or debt investment
  • Neither held-for-trading nor held-to-maturity
  • Often classified as an asset, either current or non-current
  • Profit or loss on sale is displayed as a realized gain/loss that affects net income
  • Interest or dividends received is shown on the income statement

Held-for-trading

  • Either equity or debt investment
  • Investor buys and sells frequently
  • Most likely classified as a current asset
  • Profit and loss affects income statement
  • Profit or loss on sale is displayed as a realized gain/loss that affects net income
  • Interest or dividends received is shown on the income statement

 

Read more about Investing

  • Boutique Investment Banks
  • Bulge Bracket Investment Banks
  • Middle-Market Investment Banks
  • Treasury Stock Method
  • Subsidiaries

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