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Marketable Securities

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Marketable securities are essential financial assets in corporate finance, offering liquidity and returns on surplus cash. They include stocks, bonds, and treasury bills, and are vital for working capital management. Companies use these assets to optimize returns, manage cash flow, and ensure financial stability. Understanding their types, valuation, and accounting practices is key for strategic financial management.

Introduction to Marketable Securities in Corporate Finance

Marketable securities are financial assets that can be quickly converted into cash at a reasonable price. They are an integral part of corporate finance, serving as short-term investments that enable companies to manage surplus cash efficiently while earning a return. These securities, which are traded on public markets, include stocks, bonds, treasury bills, and commercial paper. On a company's balance sheet, they are listed as current assets and are further classified based on their nature: equity securities (stocks), debt securities (bonds and treasury bills), and derivatives. Companies invest in marketable securities to optimize the return on idle cash, hedge against inflation, and ensure liquidity for operational needs or unexpected expenditures.
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The Strategic Importance of Marketable Securities in Corporate Finance

Marketable securities play a pivotal role in maintaining corporate liquidity and are a key component of working capital management. They provide firms with the flexibility to fund daily operations and capitalize on short-term investment opportunities. On the balance sheet, these securities are categorized as 'Trading', 'Available-for-sale', or 'Held-to-maturity', reflecting the company's investment intent. Transactions involving marketable securities directly impact a firm's cash flow, with acquisitions leading to cash outflows and disposals resulting in cash inflows. Strategic management of marketable securities is vital for a company's financial stability, as it ensures optimal returns on surplus funds and acts as a financial buffer during periods of economic stress.

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00

Companies invest in stocks, bonds, treasury bills, and commercial paper to maximize returns on ______, protect against ______, and maintain ______.

idle cash

inflation

liquidity

01

Categories of Marketable Securities on Balance Sheet

Classified as 'Trading', 'Available-for-sale', or 'Held-to-maturity' based on investment intent.

02

Impact of Marketable Securities on Cash Flow

Purchases cause cash outflows; sales generate cash inflows.

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