o To gain control of a majority of another competitor and integrate their operations with their own
o They may use these types of investments as a convenient way to park excess cash needed to fund working capital or long-term assets in the near future. Investing in other company debt or equity is expected to provide a higher return than could be earned by keeping the excess cash in the bank.
One firm controls another if it owns a majority (i.e. more than 50%) of its common equity. As noted above, managers typically view controlling investments as long-term and strategic. T
temporary investments in stocks, bones, and other securities that can be sold readily and that management intends to hold for only a relatively short period of time.
sometimes called temporary investments or short-term investments; includes items such as government bonds & capital stock of corporations in which the company has temporarily invested
Investments in the equity of another company that are 20% or more, but less than majority ownership are likely to provide the acquiring firm with some in-between level of control.
accounting method in which the investment in common stock is initially recorded at cost, and the investment account is then adjusted annually to show the investor's equity in the investee.