Debt investments are assets that accrue benefits over the long term. They include tangible and intangible assets. Common examples include land & buildings, bonds, patents, and property. Some types of debt are considered current assets while others are not. In addition, some types of debt are considered non-current.
Fixed income investments are those that generate periodic payments of interest, which are usually securities. Fixed income investments include government and corporate bonds. Other types of securities may not pay a fixed interest, or incorporate the interest effect into the price of the security. Variable-income securities are government Treasury bills and floating rate notes. In contrast, equity securities represent shares of a company.
Listed assets may not be beneficial to all stakeholder groups. For instance, investors who want to invest in the long-term should avoid debt investments from companies that issue questionable securities. These securities may indicate poor management or improper oversight. In addition, a company’s balance sheet will show the funding and structure of the business. This will help investors understand the company’s financial health and the risk it poses to them.
Current assets include cash equivalents, accounts receivable, inventory, and prepaid expenses. Cash equivalents are the most liquid forms of current assets, and they include checking or savings accounts. Cash equivalents are short-term investment securities, such as bank certificates of deposit and banker’s acceptances. Inventory and accounts receivable are also considered current assets if they are expected to be sold within a year.
Non-current assets are investments in other companies, land purchased with the intent of capital appreciation, and cash set aside for a special purpose. An HTM security, on the other hand, is a debt investment by the investor company that is intended to be held until maturity. They are generally reported under long-term assets, and the investor company carries an amortized cost of these investments.
A healthy current ratio enables the company to meet short-term obligations. It also gives the company cash to invest or expand. A good current ratio is 1.0, which means the liabilities are less than current assets. However, this figure varies by industry. In industries with a short payment cycle, a lower number may be acceptable.
In contrast, some debt securities are used as proxy instruments for other tradable assets. The buyer lends money to the issuer and hopes to get the full notional amount back at maturity. However, these investments also carry risk, including price risk and credit risk. These risks can be affected by changes in interest rates and a borrower default.
Current assets also include accounts receivable and inventory. Accounts receivable represents money due from clients and customers. While a debt investment may not be as liquid as other current assets, it can provide a business with additional wiggle room and dividends.
