What It Is:
Marketable securities are securities or debts that are to be sold or redeemed within a year. These are financial instruments that can be easily converted to cash such as government bonds, common stock or certificates of deposit.
How It Works/Example:
If these securities and/or debt are anticipated to be converted into cash within one year, they are listed at their current market value, in the Current Assets section of the balance sheet. If they are not trading securities, they are listed as Non Current Assets.
Held to maturity and available for sale, securities can either be listed as long term or short term, depending on the maturity dates of the securities and the intention of management regarding conversion of these securities.
Why It Matters:
Marketable securities should be a relatively small figure on the balance sheet of most nonfinancial companies. Financial companies present marketable securities in a much more prominent place on their balance sheet since they derive a significant portion of their income from these investments. Analysts use this information for liquidity ratio analysis. Creditors are interested in the marketable securities figure in order to understand what assets are liquid (insert comma) in case the company has solvency issues. Creditors want to know what they can get a hold of in the event that bankruptcy is declared.