Other Short-Term Investments
Exploring the liquid assets a company holds for near-term returns, which fall outside the strict definition of cash and cash equivalents.
“Other short-term investments” are current-asset investments that a company holds in the near term (typically for one year or less) but which do not qualify as cash or cash equivalents. They consist of liquid financial instruments that the firm intends to sell or use within its operating cycle. Essentially, they represent a way for companies to park excess cash in highly liquid securities to earn a return while keeping the funds accessible.
Definition and Distinction from Cash Equivalents
The primary distinction between other short-term investments and cash equivalents lies in maturity and risk. Both U.S. GAAP (ASC 230) and IFRS (IAS 7) use a strict three-month rule: an investment must mature within approximately 90 days from its acquisition date to be a cash equivalent. Anything held longer than that, but under 12 months, is typically classified as a short-term investment.
The 3-Month Rule
All cash equivalents are a type of short-term investment, but not all short-term investments qualify as cash equivalents. The 3-month maturity cutoff is the defining line.
Furthermore, cash equivalents must carry an “insignificant risk of changes in value,” whereas other short-term investments may have higher volatility. For example, a position in marketable equity stocks would be a short-term investment, not a cash equivalent, due to its price risk. In summary, the key differences are maturity (≤3 months vs. 3-12 months) and risk profile (virtually risk-free vs. modest risk).
Common Examples and Types
Typical instruments found in “Other Short-Term Investments” include marketable securities and other liquid, interest-bearing assets with remaining maturities under one year.
Examples of Other Short-Term Investments
- Marketable Equity Securities: Publicly traded stocks that the company plans to sell within a year.
- Marketable Debt Securities: Short-term bonds or notes, such as U.S. Treasury bills (T-bills) with maturities of 6-12 months, commercial paper, or short-term corporate notes.
- Certificates of Deposit (CDs): Bank CDs with terms longer than the 3-month cash-equivalent threshold, such as 6- or 12-month CDs.
- Money Market Funds/Accounts: Certain funds or accounts that do not meet the strict criteria for cash equivalents, perhaps due to a short lock-up period or maturity over 90 days.
- Bankers’ Acceptances & Commercial Paper: Short-term commercial obligations with maturities that often fall between three and twelve months.
Balance Sheet Presentation and Accounting
On the balance sheet, other short-term investments appear under Current Assets, usually near the top, right after the 'Cash and Cash Equivalents' line item. Companies often label this line as “Marketable Securities,” “Short-Term Investments,” or simply “Investments (current portion).”
Typical Balance Sheet Layout
From an accounting perspective, under GAAP (ASC 320/321) and IFRS (IFRS 9), these short-term marketable securities are usually measured at fair value. The recognition of gains or losses depends on their classification (e.g., trading, available-for-sale, FVTPL, or FVOCI), but their placement as a current asset is determined by the intent to sell or their maturity within one year.
Role in Liquidity Management and Analysis
Other short-term investments serve two main purposes. First, they allow a firm to earn a return on idle cash without locking funds into long-term assets, acting as a liquid reserve that generates income. Second, they provide insight to analysts about the company's financial strategy.
Analyst Perspective
A sizeable balance in short-term investments often signals prudent cash management, suggesting the company has a sufficient buffer beyond its immediate operational needs and is actively putting surplus funds to work. Conversely, a minimal balance might imply a very conservative approach or a lack of surplus cash.
In liquidity ratio analysis, these assets are always included in the current ratio. However, their inclusion in the more stringent quick ratio can vary. Some analysts exclude more volatile short-term investments to get a conservative view of liquidity. The specific mix of investments also matters; a portfolio heavy in government debt is seen as safer than one with significant equity positions. Overall, this line item is viewed as a comfort to investors, reflecting a company's strategy to balance liquidity with returns.
Key Takeaways
Other Short-Term Investments are current assets with maturities typically between 3 and 12 months, distinguishing them from cash equivalents which must mature in 3 months or less.
Common examples include marketable stocks and bonds, commercial paper, and Certificates of Deposit (CDs) with terms longer than 90 days.
They are reported under 'Current Assets' on the balance sheet, usually as a separate line item like 'Marketable Securities' directly below 'Cash and Cash Equivalents'.
These investments allow a company to earn a return on idle cash while maintaining a secondary layer of liquidity.
Analysts view this account as an indicator of a company's cash management strategy, liquidity buffer, and short-term risk appetite.
Other Short-Term Investments
Exploring the liquid assets a company holds for near-term returns, which fall outside the strict definition of cash and cash equivalents.
“Other short-term investments” are current-asset investments that a company holds in the near term (typically for one year or less) but which do not qualify as cash or cash equivalents. They consist of liquid financial instruments that the firm intends to sell or use within its operating cycle. Essentially, they represent a way for companies to park excess cash in highly liquid securities to earn a return while keeping the funds accessible.
Table of Contents
Definition and Distinction from Cash Equivalents
The primary distinction between other short-term investments and cash equivalents lies in maturity and risk. Both U.S. GAAP (ASC 230) and IFRS (IAS 7) use a strict three-month rule: an investment must mature within approximately 90 days from its acquisition date to be a cash equivalent. Anything held longer than that, but under 12 months, is typically classified as a short-term investment.
The 3-Month Rule
All cash equivalents are a type of short-term investment, but not all short-term investments qualify as cash equivalents. The 3-month maturity cutoff is the defining line.
Furthermore, cash equivalents must carry an “insignificant risk of changes in value,” whereas other short-term investments may have higher volatility. For example, a position in marketable equity stocks would be a short-term investment, not a cash equivalent, due to its price risk. In summary, the key differences are maturity (≤3 months vs. 3-12 months) and risk profile (virtually risk-free vs. modest risk).
Common Examples and Types
Typical instruments found in “Other Short-Term Investments” include marketable securities and other liquid, interest-bearing assets with remaining maturities under one year.
Examples of Other Short-Term Investments
- Marketable Equity Securities: Publicly traded stocks that the company plans to sell within a year.
- Marketable Debt Securities: Short-term bonds or notes, such as U.S. Treasury bills (T-bills) with maturities of 6-12 months, commercial paper, or short-term corporate notes.
- Certificates of Deposit (CDs): Bank CDs with terms longer than the 3-month cash-equivalent threshold, such as 6- or 12-month CDs.
- Money Market Funds/Accounts: Certain funds or accounts that do not meet the strict criteria for cash equivalents, perhaps due to a short lock-up period or maturity over 90 days.
- Bankers’ Acceptances & Commercial Paper: Short-term commercial obligations with maturities that often fall between three and twelve months.
Balance Sheet Presentation and Accounting
On the balance sheet, other short-term investments appear under Current Assets, usually near the top, right after the 'Cash and Cash Equivalents' line item. Companies often label this line as “Marketable Securities,” “Short-Term Investments,” or simply “Investments (current portion).”
Typical Balance Sheet Layout
From an accounting perspective, under GAAP (ASC 320/321) and IFRS (IFRS 9), these short-term marketable securities are usually measured at fair value. The recognition of gains or losses depends on their classification (e.g., trading, available-for-sale, FVTPL, or FVOCI), but their placement as a current asset is determined by the intent to sell or their maturity within one year.
Role in Liquidity Management and Analysis
Other short-term investments serve two main purposes. First, they allow a firm to earn a return on idle cash without locking funds into long-term assets, acting as a liquid reserve that generates income. Second, they provide insight to analysts about the company's financial strategy.
Analyst Perspective
A sizeable balance in short-term investments often signals prudent cash management, suggesting the company has a sufficient buffer beyond its immediate operational needs and is actively putting surplus funds to work. Conversely, a minimal balance might imply a very conservative approach or a lack of surplus cash.
In liquidity ratio analysis, these assets are always included in the current ratio. However, their inclusion in the more stringent quick ratio can vary. Some analysts exclude more volatile short-term investments to get a conservative view of liquidity. The specific mix of investments also matters; a portfolio heavy in government debt is seen as safer than one with significant equity positions. Overall, this line item is viewed as a comfort to investors, reflecting a company's strategy to balance liquidity with returns.
Key Takeaways
Other Short-Term Investments are current assets with maturities typically between 3 and 12 months, distinguishing them from cash equivalents which must mature in 3 months or less.
Common examples include marketable stocks and bonds, commercial paper, and Certificates of Deposit (CDs) with terms longer than 90 days.
They are reported under 'Current Assets' on the balance sheet, usually as a separate line item like 'Marketable Securities' directly below 'Cash and Cash Equivalents'.
These investments allow a company to earn a return on idle cash while maintaining a secondary layer of liquidity.
Analysts view this account as an indicator of a company's cash management strategy, liquidity buffer, and short-term risk appetite.
Related Terms
Apply This Knowledge
Ready to put Other Short-Term Investments into practice? Use our tools to analyze your portfolio and explore market opportunities.
This content is also available on our main website for public access.