Marketable Securities: Definition & Types | [Your Brand/Company Name]

Marketable securities are unrestricted short-term financial instruments that are issued either for equity securitiesStockWhat is a stock? An individual who owns stock in a company is called a shareholder and is eligible to claim part of the company’s residual assets and earnings (should the company ever be dissolved). The terms "stock", "shares", and "equity" are used interchangeably. or for debt securities of a publicly listed company. The issuing companyCorporate InformationLegal corporate information about Corporate Finance Institute (CFI). This page contains important legal information about CFI including registered address, tax number, business number, certificate of incorporation, company name, trademarks, legal counsel and accountant. 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, used for funding of public projects and expenditures.

Characteristics of marketable securities

Some investors are more eager to grab this type of investment because of the short maturity periods, which tend to be less than a year. Converting or liquidating these investments into cash is much easier than is the case with 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
• Having a strong secondary market that makes for liquid buy and sell transactions, as well as rendering an accurate price valuation for investors
• Have higher liquidity, effectively lowering risk
• NOT cash or cash equivalents (money market securities due within 3 months)

Naturally, the suitability of 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 are classified differently when it comes to their accounting, based on the purpose for which they are bought.

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 has employed in their past accounting practices.

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 EquivalentsCash EquivalentsCash and cash equivalents are the most liquid of all assets on the balance sheet. Cash equivalents include money market securities, banker's acceptances because they 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:

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 CFI resources will help you on your way:

• Analysis of financial statementsAnalysis of Financial StatementsHow to perform Analysis of Financial Statements. This guide will teach you to perform financial statement analysis of the income statement,
• Comparable company analysisComparable Company AnalysisThis guide shows you step-by-step how to build comparable company analysis ("Comps") and includes a free template and many examples.
• What is financial modeling?What is Financial ModelingFinancial modeling is performed in Excel to forecast a company's financial performance. Overview of what is financial modeling, how & why to build a model.
• DCF modeling guideDCF Model Training Free GuideA DCF model is a specific type of financial model used to value a business. The model is simply a forecast of a company’s unlevered free cash flow