Marketable security definition
/What is a Marketable Security?
A marketable security is an easily traded investment that is readily converted into cash, usually because there is a strong secondary market for the security. Such securities are typically traded on a public exchange, where price quotes are readily available. The trade-off for the high level of liquidity is that the return on marketable securities is usually low.
Presentation of Marketable Securities
Marketable securities are recorded as a current asset on the balance sheet, since they have a maturity of less than one year. This is of some importance when calculating the current ratio, since marketable securities are included in the numerator of that calculation, and make a business look more liquid.
Examples of Marketable Securities
Examples of marketable securities are:
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When to Invest in Marketable Securities
A conservatively-run business may place a large proportion of its excess cash in marketable securities, so that it can easily liquidate them if there is a sudden need for cash. A tightly-managed treasury department that has a clear understanding of expected cash flows may pursue higher-return investments which typically require longer maturities, and so will invest a smaller proportion of excess cash in marketable securities.