"Marketable Securities" in cash solvency analysis
What should be included as "marketable securities" in cash solvency analysis? This is a common question from many of my students in PA5003.
According to "Investopedia," marketable securities are very liquid securities that can be converted into cash quickly at a reasonable price. They tend to have maturities of less than one year. Examples include "commercial paper, Treasury bills and other money market instruments." [Jerry: note that money market account may be considered as "cash equivalent."]
For an "unknown" fund of investment in a financial statement, try the following steps:
1. See whether it is listed under "current" or "noncurrent" assets -- it is a marketable security if listed as a current asset;
2. Try to search around (in the file or on Internet) or contact financial specialist in the government (organization) to know what is the fund about and how it is operated;
3. If you still cannot determine, take the conservative route and treat it as noncurrent and not include it as a marketable security