The advantage of short term investments is that they allow a firm to gain fast growth in a short period of time. Schroeder et al (2011) defines short term securities as liquid investments of idle funds, which are cash equivalents that earns interest during a short period of time. Marketable securities are an example of short term investments, because they are easily converted to cash and can be bought or sold with little effect on the price of the securities. Furthermore, short term investments usually provide a firm with an increase in return on investments (ROI). Additionally, some short term securities include treasury bonds, stocks, mutual funds, money market funds or even certificates of deposits, in which a company may use to earn quick cash. Some firms have a short term investment account, if their financial position is strong; whereas the company makes investments to gain a high interest, thus increasing its revenues (Gramlich et al, 2001). Arora et al (2014) says that over the long term, the uncertainty around the evolution of asset value will dominate the lack of precision in information. Gramlich et al (2001) added that short term debt causes long term debt ratios to shift in the opposite direction, if the current debt is classified as long term. A firm seeking to make a short term investment decision, will more than likely gain short bursts of cash or cash …show more content…
Additional long term assets include investments and intangible assets. Some firms invest a majority of their capital in property, plant and equipment because it is the physical resources available for the firm’s operations (Schroeder et al, 2011). The investment cost of these items is important for interested parties, because they want to know to what extent a firm invest in these assets. Some of these assets may be acquired through group purchases or self-constructions. Some issues that may occur from acquiring assets in this manner is associating a cost to the items, like the appraisal value and overhead cost (Schroeder et al, 2011). Brignall (2007) mentions that under the general accepted accounting principles (GAAP), the assets a firm acquires must be recorded on the balance sheet with the historical cost; additionally, the long lived assets must be assessed accordingly due to inflation minus the depreciation rate. Schroeder et al (2011) added that the depreciation of the assets is computed for financial purposes, using a straight-line depreciation method. However, the remaining assets below must be recorded using other methods such as the equity method, fair and market value method, fair value option