Long-term investment

Definition

A long-term investment is an asset that a company intends to hold for more than one year, such as stocks, bonds, real estate, or other investments. These investments are typically not intended for immediate liquidation and are used to achieve strategic goals or earn returns over an extended period.

5 Must Know Facts For Your Next Test

1. Long-term investments are classified separately from short-term assets on the balance sheet.
2. These investments can impact a company's liquidity ratios, such as the current ratio and working capital.
3. Long-term investments are recorded at their initial cost and may be adjusted for changes in market value or impairment.
4. Dividends or interest earned from long-term investments can contribute to a company’s income.
5. The accounting treatment of long-term investments follows specific guidelines under generally accepted accounting principles (GAAP).

Related terms

Current Ratio:

A measure of a company's ability to pay its short-term liabilities with its short-term assets.

Working Capital:

The difference between a company's current assets and current liabilities.

Liquidity:

The ease with which an asset can be converted into cash without affecting its market price.