What is a Channel Check?

With investing, a channel check is the process of investigating a company using independent sources, rather than relying on information provided by that company. This approach makes it possible to ascertain the true financial situation of the company, and determine the effect of that situation on the future of any securities the corporation issues. By making use of the results generated by a thorough channel check, investors can make informed decisions regarding transactions related to the company’s stock offerings.

For the most part, the channel check is performed by a certified financial analyst that has no connection with the company under scrutiny, or any party that might benefit from the purchase or sale of its stock. This creates a situation where there is no motivation or incentive to present the findings in the best possible light. At the same time, the analyst also has no reason to present the facts in a way that makes the company’s finances seem worse than they are. What emerges is a totally objective assessment of the financial stability of the company, which in turn reflects on the stock issued by that company.

Investors benefit from the channel check because it eliminates any confusion that is sometimes created when companies attempt to massage financial data in a manner that presents the most positive image possible to the general public. Since the check is conducted by a professional who has no vested interest one way or the other, there is the chance to get beyond the public relations spin on finances and work with an analysis that is unbiased and based completely on facts. The end result is that the investor has everything he or she needs to determine if purchasing shares of the stock is a good move, or if looking for some other investment opportunity would be a better strategy.

Based on the outcome of a channel check, the rating of the company may be upgraded or downgraded. If the check confirms the accuracy and completeness of the data supplied by the company, then the rating is likely to remain the same or even increase slightly. Should the analysis discover that several key pieces of information are either omitted or not given proper attention in the company-issued information, there is a good chance that the rating will decrease. The only exception would be when the channel check yields data that the company had failed to include, but that demonstrates the business is actually more financially sound than previously thought. Should this rare situation occur, the rating of the company and its stock offerings could increase.