In financial analysis, a channel check is third-party research on a company's business based on collecting information from the
distribution channels
Distribution is the process of making a product or service available for the consumer or business user who needs it, and a distributor is a business involved in the distribution stage of the value chain. Distribution can be done directly by the ...
of the company. Performed by third party researchers and financial analysts in order to collect information about a company's business, checks may help to
value the company or be used to perform
due diligence
Due diligence is the investigation or exercise of care that a reasonable business or person is normally expected to take before entering into an agreement or contract with another party or an act with a certain standard of care.
Due diligence ...
in various contexts.
Channel check process
The channel check process includes interviewing people within other organizations connected to the company's
supply
Supply or supplies may refer to:
*The amount of a resource that is available
**Supply (economics), the amount of a product which is available to customers
**Materiel, the goods and equipment for a military unit to fulfill its mission
*Supply, as ...
and distribution channels. These interviews usually occur without the target company's knowledge. For example, a channel check could include one or multiple conversations with a store manager to understand their targeted customer. Analysts generally look for top products, customer buying patterns and past performance.
Analysts could also contact one or several suppliers or vendors to obtain information about the targeted company. In these interviews analysts are looking for quantity of materials being demanded and prices. Suppliers could also help analysts to see the "bigger picture": a company's
production plans
Production may refer to:
Economics and business
* Production (economics)
* Production, the act of manufacturing goods
* Production, in the outline of industrial organization, the act of making products (goods and services)
* Production as a stati ...
, new products and more. Suppliers may also give an indication of the raw material availability, finished product inventory levels, promotion plans to the Analysts.
Channel checks can give insights complementary to
balance sheet
In financial accounting, a balance sheet (also known as statement of financial position or statement of financial condition) is a summary of the financial balances of an individual or organization, whether it be a sole proprietorship, a business ...
analysis, such as distributor and retailer attitudes towards a product and its competitors,
seasonal
A season is a division of the year based on changes in weather, ecology, and the number of daylight hours in a given region. On Earth, seasons are the result of the axial parallelism of Earth's axial tilt, tilted orbit around the Sun. In temperat ...
and geographic variation,
inventory
Inventory (British English) or stock (American English) is a quantity of the goods and materials that a business holds for the ultimate goal of resale, production or utilisation.
Inventory management is a discipline primarily about specifying ...
levels (notably
channel stuffing
Channel stuffing, also known as trade loading, is a business practice in which a company, or a sales force within a company, inflates its sales figures by forcing more products through a distribution channel than the channel is capable of selling. ...
), and so on.
In the United States, the
Securities and Exchange Commission
The United States Securities and Exchange Commission (SEC) is an independent agency of the United States federal government, created in the aftermath of the Wall Street crash of 1929. Its primary purpose is to enforce laws against market m ...
has clarified that channel checks are legitimate tools of business research but they should not make illegal use of
insider information
Insider trading is the trading of a public company's stock or other securities (such as bonds or stock options) based on material, nonpublic information about the company. In various countries, some kinds of trading based on insider informati ...
.
[Integrity Research Associates]
Are Channel Checks Legit?
published 9 May 2011, accessed 11 November 2023
See also
*
Due diligence
Due diligence is the investigation or exercise of care that a reasonable business or person is normally expected to take before entering into an agreement or contract with another party or an act with a certain standard of care.
Due diligence ...
*
Standard of care
In tort law, the standard of care is the only degree of prudence and caution required of an individual who is under a duty of care.
The requirements of the standard are closely dependent on circumstances. Whether the standard of care has been b ...
*
Duty of care
In Tort, tort law, a duty of care is a legal Law of obligations, obligation that is imposed on an individual, requiring adherence to a standard of care, standard of Reasonable person, reasonable care to avoid careless acts that could foreseeab ...
*
Business ethics
Business ethics (also known as corporate ethics) is a form of applied ethics or professional ethics, that examines ethical principles and moral or ethical problems that can arise in a business environment. It applies to all aspects of business c ...
References
External links
* http://www.investopedia.com/terms/c/channelcheck.asp
* https://www.theatlantic.com/technology/archive/2010/11/whats-a-channel-check-anyway/67017/
* https://web.archive.org/web/20141010072000/http://www.gxsblogs.com/sampathp/2010/11/channel-check-where-supply-chains-meet-insider-trading.html
Valuation (finance)
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