Thursday, January 13, 2011

Net Investment Income Addendum

Someone pointed out to me that I failed to mention what the below line represents:

Interest income from cash and cash equivalent investments
This line item for most companies will include true Cash that is sitting in an account and assets that are readily convertible into cash. This second category is more fluid than Cash. For most firms, CE will be money market holdings, short-term government bonds (DEVELOPED countries), US Treasury Bills and Notes, highly liquid securities and commercial paper with Investment Grade Ratings. For example, MSFT commercial paper may be considered Cash Equivalent while Lehman CP would not. Some firms like to get more exotic in their cash equivalent definition by including duration (bonds), time to maturity, if the issuer of the debt (bond/loan) is a GSE and the list goes on and on.

Thank you for reading and welcome to all new readers!

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