Asked by Kevin Clayton on Jul 14, 2024
Verified
Compare and contrast why companies invest cash in short-term temporary investments vs. long-term investments.
Short-term Investments
Financial instruments or securities that are expected to be sold or converted into cash typically within a year or less.
Long-term Investments
Investments in other companies, real estate, or securities that a company intends to hold for more than one fiscal year.
Cash Invest
The process of committing money or capital to an endeavor with the expectation of obtaining an additional income or profit.
- Compare and contrast short-term and long-term investment strategies.
Verified Answer
The primary reason companies invest short-term is to earn interest or dividends and to realize gains from the increase in the market price of the securities. When companies make temporary investments, they are listed as current assets on the balance sheet.
Long-term investments may be made for the same reasons. However, many long-term investments involve the purchase of stock of another company. This type of purchase may be made for strategic reasons such as an attempt to reduce operating costs, replace management, expand, or integrate.
Learning Objectives
- Compare and contrast short-term and long-term investment strategies.
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