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The difference between short-term and long-term investments

What is an investment?

 It is necessary to know what investment is to know the difference between short-term and long-term investments. Investment is the allocation of money in anticipation of achieving some benefit in the future. In finance, it is called benefiting from investment with a return. The return may consist of profit or loss and is achieved from the sale of property or investment, and it may be income from Investment is like profit distributed to shareholders or income from rent. The return may be a mixture of capital gains and income together. The return may also include gains or losses from the currency due to changes in foreign exchange rates. The next lines will explain the difference between short-term and long-term investments.

The difference between short-term and long-term investments

The difference between short-term and long-term investments
The difference between short-term and long-term investments

The difference between short-term and long-term investments in managing their operations, and short- and long-term investments have time periods on which to categorize short- and long-term investments into short or long, and short-term investment may be reclassified to become long-term investment and the following lines will explain the difference between investments short term and long term.

short term investments

Also called temporary investments or marketable securities, it is a debt or equity that is expected to be sold or converted into cash and the period is from 3 months to 12 months, in other words it is stocks and bonds that the management holds to earn a quick return and plans to sell in the current accounting period Short-term investments have two basic requirements. First, short-term or temporary investments must be convertible into cash quickly and easily. This means that opaque and unknown investments in private companies cannot be classified as short-term investments, and if short-term investments cannot be sold quickly and easily, They are not considered marketable securities. Second, the management must intend to transfer or sell the investments within 3 to 12 months, which depends on the management’s vision. For example, the management may buy shares in a company as a short-term investment and intends to sell it during the next few months, but the decline in the value of the shares pushed the management In this case, the shares initially purchased were a short-term investment, but the management changed its mind due to The decline in the value of the shares and the decision to hold them for a period longer than the current accounting period, the shares have been reclassified to a long-term investment.

long-term investments

Long-term investments are non-current assets that are not used in operating activities to generate revenue, that is, long-term investments are assets that are held for more than one year or an accounting period, and are used to create other income outside the normal operations of the company. Usually, stocks and bonds receivable are long-term investments if Management has planned to hold them for more than one year and none of these assets are usually used in operating activities, for example, the company does not buy bonds as part of its operations unless it is an investment company and the purchase of bonds is an investment for manufacturers and the company can invest in assets that can be used in operations But it is kept as an investment. For example, land is a long-term investment and asset that is usually used in corporate operations. For example, a manufacturer looking to expand the factory space may buy a ten-acre plot of land and use five dunams of the ten dunams it purchased for the purposes of Expansion In this case, the company keeps the remaining five acres with the aim of selling it to another company and is considered a long-term investment It is not used in the company's operations while the space it has expanded into is a long-term asset.

Investment Analysis

Investment analysis includes the use of ratios and trend analysis, in addition to the researchers’ opinions to make decisions about allocating funds in various investment means. New competition in the market, change in technology, change in government laws, or even change in tax rate, and the analysis of investments depends on the investment priorities of the investor.
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