What are public securities?
Public securities, also known as a marketable securitiesMarketable SecuritiesMarketable 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., 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.
The investorInvestment Banking Career PathInvestment banking career guide - plan your IB career path. Learn about investment banking salaries, how to get hired, and what to do after a career in IB. The investment banking division (IBD) helps governments, corporations, and institutions raise capital and complete mergers and acquisitions (M&A). 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 accountingAccountingPublic accounting firms consist of accountants whose job is serving business, individuals, governments & nonprofit by preparing financial statements, taxes 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 statementIncome StatementThe Income Statement is one of a company's core financial statements that shows their profit and loss over a period of time. The profit or loss is determined by taking all revenues and subtracting all expenses from both operating and non-operating activities.This statement is one of three statements used in both corporate finance (including financial modeling) and accounting.
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 incomeNet IncomeNet Income is a key line item, not only in the income statement, but in all three core financial statements. While it is arrived at through the income statement, the net profit is also used in both the balance sheet and the cash flow statement.
- 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
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