Introduction
Short-term investments are liquid financial instruments where companies park cash temporarily: government bonds, commercial paper, money market funds.
Explanation
Companies with a lot of cash (Apple, Google) do not leave it in checking accounts at 0% interest. They invest it in safe and liquid instruments that generate 2-5% returns. These are "near cash" and clear in days.
Formula
Cash & Cash Equivalents = Cash + Short-Term Investments
Example
Apple 2023: - Cash: $30B - Short Term Investments: $60B - Total Liquid: $90B Apple has more immediate liquidity ($90B) than the GDP of many small countries.
How to read it
High Cash + Short Term Investments = financial strength and flexibility. It allows the company to: 1) Survive recessions without external financing, 2) Make quick acquisitions, 3) Increase dividends or buybacks. Red flag: rapidly declining cash may indicate unsustainable burn rate.
Key takeaways
- Short-term investments = "almost cash"
- Instruments: government bonds, commercial paper, monetary funds
- They generate 2-5% return vs 0% cash
- High cash + short term investments = strength
- Apple has $90B liquid (cash + short term)
- Rapidly declining cash = possible unsustainable burn