Long-Term Investments
AdvancedLong-term investments are financial investments a company intends to hold for more than a year, such as shares in other companies, bonds held to maturity or stakes in associates, shown as non-current assets on the balance sheet.
Companies invest spare cash in different ways. Short-term investments, held for less than a year, sit in current assets. Investments the company plans to keep for longer are long-term investments.
Examples include bonds the company plans to hold until they mature, equity stakes in other companies held for strategic reasons, investments in associates and joint ventures, and certain property held for investment.
For example, a manufacturer might buy a 25% stake in a key supplier to secure its supply chain, recording the stake as a long-term investment.
How long-term investments are measured depends on their type and the accounting standard. Some are carried at amortized cost, some at fair value with changes in profit or loss, some at fair value with changes in other comprehensive income, and stakes giving significant influence are often accounted for using the equity method. Analysts often treat long-term investments that are not part of the core business as non-operating assets when valuing a company.
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