Temporary Financial Investments: Generating Short-Term Returns

Companies are constantly looking for ways to optimize their financial resources. A key strategy to achieve this goal is temporary financial investment. This type of investment allows companies to generate returns on their surplus capital in the short term, contributing to their overall profitability.

This article will explore the concept of temporary financial investments, detailing their characteristics, benefits and accounting treatment.

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Temporary Financial Investments: Concept and Characteristics

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Temporary financial investments are short-term capital placements, generally with a time horizon of less than one year, made with the main objective of generating liquidity and profitability. These invested resources are not necessary for the daily operations of the company and are expected to be recovered in a relatively short period of time.

The main characteristics of temporary financial investments are:

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• Short-term: The time horizon of these investments is less than one year. This allows the company to access its capital quickly when needed.
• High liquidity: It is invested in financial instruments that are easily convertible into cash, guaranteeing the availability of resources when needed.
• Low risk: Generally investments with a low level of risk are selected, as the main objective is to preserve capital and generate a moderate return.

Benefits of Temporary Financial Investments

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Temporary financial investments offer several benefits for companies:

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• Generation of returns: They allow you to earn a return on surplus capital in the short term, rather than keeping it idle in the current account.
• Improved profitability: The return generated by temporary financial investments contributes to the company's overall financial performance.
• Optimization of financial resources: Companies leverage their surplus liquidity to generate short-term value.
• Improved solvency: The availability of investments that are fály convertible into cash improves a company's ability to meet its short-term obligations.

Examples of Temporary Financial Investments

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There are several financial instruments that are considered temporary investments due to their high liquidity and short term. Below is a list of some examples:

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• Term Certificates of Deposit (CDPs): Instruments issued by banks offering a fixed interest rate in exchange for a deposit of money for a specified term.
• Short-term payables: documents representing a short-term debt in favor of the company.
• Short-term investment funds: Instruments that invest in a diversified basket of financial assets, with high liquidity and low risk.
• Interest-bearing current accounts: Bank accounts that earn interest on the balance held.
• Money market: Short-term debt instruments issued by governments or highly creditworthy companies.

It is important to note that the selection of the most suitable financial instrument for a temporary investment will depend on the specific needs of the company, its risk tolerance and the investment time horizon.

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Temporary Financial Investments in Accounting

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Temporary financial investments are recorded in the company's accounting as part of current assets. Current assets consist of liquid or easily convertible economic resources that can be converted into cash in the short term, which is consistent with the nature of short-term financial investments.

The specific accounting account used to record temporary financial investments will depend on the type of financial instrument invested. For example, term certificates of deposit are recorded in a specific account for this type of instrument, while investments in short-term mutual funds are recorded in a general account for investments in mutual funds.

A proper recording and valuation of short-term financial investments is essential for a fair presentation of the company's financial statements.

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Conclusion

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Temporary financial investments are a valuable tool for corporate financial management. They allow to generate returns on surplus capital in the short term, contributing to the optimization of resources and the improvement of profitability. By selecting financial instruments with high liquidity and low risk, companies can make profits without jeopardizing their short-term solvency.

A proper understanding of the concept of temporary financial investments, their accounting treatment and the selection of appropriate instruments, are key elements for successful corporate financial management.