Skye Bioscience, Inc. Fair Value Disclosure
| Fair Value Measurement as of December 31, 2025 | |||||||||||
| Valuation | |||||||||||
| Hierarchy | Total | ||||||||||
| Assets: | |||||||||||
| Money market funds (included in cash and cash equivalents) | Level 1 | $ | 1,461,609 | ||||||||
| U.S. treasury obligations (included in short-term investments) | Level 1 | 19,854,723 | |||||||||
| Total cash equivalents and marketable securities | $ | 21,316,332 | |||||||||
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About Fair Value Disclosures
Fair value disclosures classify all assets and liabilities measured at fair value into a three-level hierarchy: Level 1 (quoted market prices), Level 2 (observable inputs like yield curves), and Level 3 (unobservable inputs requiring management estimates). The proportion of Level 3 assets directly reflects how much of the balance sheet depends on internal models rather than market evidence.
Key signals: a growing Level 3 balance relative to total fair-value assets increases valuation uncertainty and earnings volatility risk. Watch for transfers between levels — assets moving from Level 2 to Level 3 often signal deteriorating market liquidity. Unrealized gains and losses on Level 3 positions flow through earnings or other comprehensive income, so large swings deserve scrutiny. For financial institutions, examine the sensitivity disclosures that show how Level 3 valuations change under alternative assumptions. Compare the fair value of debt against its carrying amount to gauge hidden leverage.