Short-Term Investments

Intermediate

Short-term investments are financial assets that a company expects to sell or that will mature within one year, but that do not qualify as cash equivalents.

Companies often have more cash than they need for day-to-day operations. Rather than leaving it idle, they invest it in assets that earn a return but can be turned into cash fairly quickly. Those that mature or are expected to be sold within a year, but take longer than about three months or carry more risk than cash equivalents, are reported as short-term investments.

Examples include term deposits of six or twelve months, government or corporate bonds maturing within a year and shares held for trading.

For example, a company might hold 5 million in cash and cash equivalents and another 8 million in six-month deposits and short-dated bonds, reported as short-term investments within current assets.

Short-term investments add to a company's liquidity, though they may be slightly less accessible than cash. Depending on their type, they may be measured at fair value, with changes in value affecting profit or other comprehensive income, or at amortized cost.

Analysts often add cash, cash equivalents and short-term investments together when measuring how much readily available money a company has.

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