Definition
The financial accounting term marketable security is used to describe both debt and equity securities held by a company. Marketable securities is a subset of short term investments, as such it appears on the company's balance sheet as a current asset.
Explanation
Marketable securities are temporary investments one company might make in another company, with the hope of providing higher returns to its shareholders. There are two basic types of marketable securities:
Marketable Equity Securities: common or preferred stock investments held by a company in another large corporation. Since there is an active market for such marketable equity securities, they are considered liquid investments; nearly as liquid as cash. Until these securities are sold, they are usually valued at the lower of cost or market.
If the investment in equity securities is for purposes of controlling that company, those securities are not considered marketable equity securities; rather they are considered long term investments.
Marketable Debt Securities: short term bonds held by one company in another large corporation. These debt securities are held by companies as an alternative to cash, and there should be an active market to ensure liquidity of the investment. Marketable debt securities should be carried at cost, until a gain or loss is realized at sale.
These debt securities should be held as short term investments, meaning longer than twelve months; otherwise this asset belongs in the category of long term investments.
Related Terms
Also known as a statement of financial position, the balance sheet is used to show the financial health of a company at a particular point in time. The balance sheet consists of assets, liabilities, and owner's equity in the company. It is one of the four key financial statements issued by public companies.
Moneyzine EditorNovember 6th, 2024
The financial accounting term current assets is generally defined as cash and other assets that can be converted into cash within one year or one operating cycle, whichever is longer. Current assets are a subcategory of assets, which appear on a company's balance sheet.Moneyzine EditorNovember 6th, 2024
The financial accounting term long term investments is defined as those investments owned by the company, with the intention to hold onto these assets for many years. Long term investments appear as an asset on the company's balance sheet.Moneyzine EditorNovember 6th, 2024- The financial accounting term short-term investments refers to securities the company has purchased that can, and will be, sold in less than twelve months. Also known as temporary investments, short-term investments typically include marketable equity and debt securities as well as short-term paper.Moneyzine EditorNovember 6th, 2024
- The term short-term paper refers to debt securities issued at a discount, with maturities that range from ninety days to nine months. Short-term paper may be issued by government agencies, large financial institutions, or corporations. Examples of these securities include commercial paper, promissory notes, and Treasury bills.Moneyzine EditorSeptember 21st, 2023
