Long-Term Investments
Contents
Demystifying Long-Term Investments: Everything You Need to Know
Understanding Long-Term Investments
Definition: Long-term investments are assets held by a company for over a year, encompassing stocks, bonds, real estate, and cash. These investments are strategic holdings intended for extended periods.
Differentiation: Distinguished from short-term investments by their longevity, long-term investments are not typically intended for immediate sale.
Risk and Reward: Long-term investing entails accepting higher levels of risk in pursuit of potentially greater returns, requiring patience and capital commitment.
Long-Term Investments Explained
Strategic Holdings: Long-term investing often involves acquiring significant stakes in other companies, influencing decision-making without majority ownership.
Balance Sheet Implications: The classification of investments as long-term or short-term directly impacts their valuation on the balance sheet and subsequent income statement reporting.
Held to Maturity Investments
Matured Investments: Investments intended to be held until maturity are recorded at cost, with any premiums or discounts amortized over their lifespan.
Case Study: Examples like eBay's acquisition of PayPal showcase successful long-term investments that yield substantial returns over time.
Available for Sale and Trading Investments
Short-Term Profit Motive: Investments held for resale within a year are classified as current investments, while those intended for future sale are labeled 'available for sale.'
Valuation Dynamics: 'Available for sale' long-term investments are adjusted to fair value at reporting periods, with unrealized gains or losses held as 'other comprehensive income.'