Companies earn their revenue by executing the core principles of their business model; they sell a product or service that they believe the wider public would be interested in buying. The company sets a price for this product, which is dictated by supply and demand.
If the product is successful and costs are managed well, a company will see profits. However, creating and selling a product is not the only way a business can add to its bottom line. They can also do this through the purchase and sale of marketable securities.
Key Takeaways
- Companies can increase their profits by investing in stocks, bonds, and other assets.
- These assets are listed as marketable securities on a company’s balance sheet and can quickly be converted to cash.
- The way these securities are classified and reported determines how long they’ll be held for.
- Marketable securities impact a company’s balance sheet, income statement, and cash flow statement, influencing financial reporting.
Marketable Securities
A marketable security is a financial asset that can be sold or converted to cash within a year. They are typically securities that can be bought or sold on an exchange. Common examples of marketable securities include stocks, bonds, certificates of deposit (CD), or commodities contracts.
Marketable securities are a component of current assets on a firm’s balance sheet. It is part of a figure that helps determine how liquid a company is, and its ability to pay expenses or pay down debt if it needs to liquidate assets into cash to do so.
Investing in marketable securities is much preferred to holding cash in hand because investments provide returns and therefore generate profits.
For example, Apple (AAPL), which has one of the largest cash reserves of any company, holds $30.3 billion in cash and cash equivalents and $24.5 billion in marketable securities, as of Q1 2025.
A company reports marketable securities in its financial statements and how they classify and record these investments depends on how long a company intends to hold them for. Marketable securities can be classified as:
The manner in which a company reports the changes in the market price of these securities varies, but it affects several parts of the financial statements.
Balance Sheet
The balance sheet is the starting point for marketable securities. This is the primary location where they are noted and they are listed as an asset. Usually, the securities are stated at fair market value as of the date of the financial statements. Held-to-maturity securities may be listed at cost, but this has become fairly uncommon.
Marketable securities are most often designated as current assets, that is because they are intended to be held for less than a year. Some companies will list marketable securities as noncurrent assets if they intend to hold them for a long period of time.
An example of this would be if a company is planning an acquisition of a target firm. In this case, it will purchase the shares of a company, hold on to them, and consider them noncurrent marketable securities.
Marketable securities are also denoted under shareholder’s equity on the balance sheet as unrealized proceeds. They are unrealized because they have not been sold as yet so their value can still change. They are listed at their current market value as they are under the assets section of the balance sheet.
Note
While cryptocurrencies can be bought and sold on exchanges and are relatively liquid, they are generally not considered marketable securities because of their extreme volatility and regulatory uncertainty.
Income Statement
Marketable securities, particularly trading securities, are recorded at the time they are sold. The gain or loss of the sale is recorded on the income statement under the operating income segment as a line item denoted as “Gain (Loss) on Trading Securities.” The gain or loss will impact the overall income statement and therefore the earnings of the company.
Cash Flow Statement
The cash flow statement would show the changes in the fair market value of the investments as a reconciling item in the operating section of the statement.
The investing section of the statement always shows the cash used to purchase securities or the cash received from the sale of securities. For example, when marketable securities are sold at a gain, the cash inflow from the sale would be denoted on the cash flow statement.
Disclosures
Disclosures to the financial statements describe how the marketable securities have been classified. They also provide further detail as to what kinds of securities are owned by the company and what transactions may have taken place during the fiscal year.
This section tends to be more qualitative than quantitative, shedding more light on the marketable securities that a company has on hand.
What Are Examples of Marketable Securities?
Marketable securities are liquid investments that can easily be bought and sold on public exchanges. Such investments include stocks, bonds, exchange-traded funds (ETFs), mutual funds, and Treasury bills. These assets can be quickly converted to cash, making them useful for companies that need short-term liquidity.
Is a 401(k) a Marketable Security?
No, a 401(k) is not a marketable security. In fact, a 401(k) is not a security at all because you can’t buy or sell it like you can marketable securities, which are investments such as stocks and bonds. A 401(k) is a retirement account with its own rules and is not intended to be converted to cash. While 401(k)s do make investments, primarily in mutual funds, individuals are not allowed to withdraw from them until they are 59 1/2 without facing a penalty.
Why Do Firms Hold Marketable Securities?
Firms hold marketable securities for one primary reason: to generate a return on excess cash while still keeping it accessible. Rather than letting excess cash sit idle, it is better to invest it and earn a return. That’s the purpose of marketable securities. Additionally, marketable securities are liquid, meaning they can be converted to cash easily, which makes them useful for companies when they need the cash, such as to cover unexpected expenses or use towards business opportunities.
The Bottom Line
Companies invest their money in stocks, bonds, and other assets to increase profitability. These investments can quickly be converted to cash, are listed as marketable securities on a company’s balance sheet, impact the income statement when sold, and appear on the cash flow statement when traded. The way they’re classified (held for trading, available for sale, held to maturity), determines how they’re reported.
