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What Is A Stock Presentation

This presentation accompanies our lesson on Stocks, which is available as a class Assignment with a built-in assessment. Click Here to view the main lesson !

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Stock Pitch

A guide on how to approach one of Wall Street’s most ubiquitous assignments: the stock pitch.

What is a Stock Pitch?

Whether you’re involved in a finance club at your university or applying for a position at a hedge fund, individuals pursuing a career in finance have all more than likely come across the illustrious stock pitch.

A stock pitch, simply put, is a presentation or paper documenting your thesis as to whether a company is overvalued or undervalued. Supporting evidence is used to tell a narrative and ultimately guide the audience towards your investment recommendation to buy or short a stock.

Let’s look into the steps of building a successful stock pitch.

Before Putting Pen to Paper: Building a Credible Investment Thesis

Generate ideas through research.

An important first step in the process is doing the underlying research. Find an industry you are interested in or one that you think has structural tailwinds, and narrow in by screening for certain criteria (i.e. geography, revenue, market cap, etc.). 

Once you have a more targeted list, look through industry primers, news publications, research reports, company reports, and other available resources on the main companies in the industry.

What to look for:

• Competitors with an angle of differentiation.
• Catalysts that seem to be overlooked.
• Strong underlying business fundamentals that make for a clear and compelling argument.

Unless you have a strong background in the space, try to avoid companies in industries like Oil & Gas or Financial Institutions that have unique approaches to valuation, as this will create unnecessary complications in building out your analysis.

Determine an Investment Thesis

Once you have a target company in mind, it's important to lay the foundation behind your ideas. One thing to remember is that equities, in theory, are supposed to have all publicly available information priced into the stock. This simply means that the market has traded on the stock to reflect a price that captures what is known about the respective company.

Your investment thesis, then, is to set the stage for why you are convinced that the market is dislocated. What evidence is there to suggest that the institutional investors may have gotten it wrong?

While not exhaustive, here are a few areas around which your investment thesis may be driven:

• Strategic Shifts – A company’s decision to make systemic changes to its organization or operations creates uncertainty as to the credibility and confidence of change.
• Misinterpreted Growth Levers – Company developments (organic or inorganic) or its strategic positioning may be discounted in the market or viewed over-optimistically.
• Susceptibility to Macro Factors – Trends in the macroenvironment and/or the industry landscape may create opportunities for disruption or create unanticipated barriers to development and competitive differentiation.

As an example, when I worked on a stock pitch a few years ago for the company Sony , my pitch started off with the following overarching observation that helped to organize my thoughts and structure the presentation:

Sony’s reorientation of its business in 2012 reflected a monumental shift in the company’s vision towards key investment areas and product innovation. Innovations like the PS5 (set to be released in the following years) were not properly accounted for in future projections despite historical precedent for similar key mark product launches, as the company’s stock remained overshadowed by its legacy inability to adapt to technological advances.

How to Structure a Stock Pitch

The general structure of a stock pitch is relatively consistent across the board, broken down into the following sections:

• Investment Summary
• Industry & Company Overview
• Risks & Mitigants
• Final Recommendation

Section 1: Investment Summary

The investment summary serves to bring your ideas up front in a concise, punchy manner. Often covered over a single slide, include things like:

• Recommendation – The position you hold (buy or short), the target price of the stock, and the time horizon expected to achieve this price.
• Catalysts – The 3-4 drivers behind your belief that the stock price will change (analyzed more closely in the following slides).
• Valuation – The football field summary or median implied share derived from your valuation analyses and what this implies based on the current market price.
• Risks – The items that may pose a threat to your investment case so that the audience knows you’ve analyzed both sides of the story.

Section 2: Industry and Company Overview

In a movie, the industry and company overview would be the plot. The goal with these slides isn’t itself to sell your viewpoint, but more so to give context around the dynamics which help lend themselves to your recommendation.

Industry Overview Guidance Questions

• What are the trends today that you see?
• What does the competitive landscape look like?
• Where is there an opportunity for growth?

Company Overview Guidance Questions

• What is the history of the company (visuals like an annotated stock price chart can help to tell this story)?
• How is the company positioned in its market?
• What are the company's competitive advantages?

Section 3: Catalysts

If the investment thesis is the floor of a building, catalysts are the pillars. Here, you want to detail the near-term initiatives that the company plans to take which will support its capital appreciation. This may include:

• Product Launches
• Geographic Expansion
• Cost Optimization
• Acquisitions / Divestitures
• Leadership Change

Each catalyst should have its own dedicated page to fully explain how you see this as tangible evidence for business growth. This is the meat of your argument, so the key lies in the details of your observations.

Section 4: Risks & Mitigants

As an investor, it’s important to consider all cases, particularly those where things don’t turn out so rosy. With the risks and mitigants section, you are trying to show that you’ve considered there is a probability for downside, but after thoughtful consideration, the potential benefits outweigh the likelihood of these concerns manifesting.

Risks and mitigants are typically laid out on a single page, structured by noting the most relevant potential impediments to the business. This is followed with a few bullets per risk noting what the business is doing, in its strategy and day-to-day business operations, that help to alleviate the threat of this risk.

Example - Luxury Goods Company

Risk: Luxury goods revenue is dependent on a relatively small sales volume at high prices, which leaves its financial performance subject to broader economic conditions that may influence discretionary spending.

Mitigant: The company has relatively high pricing power to counteract potential decreases in sales. In addition, its end market of high-net-worth clients is insulated from recessionary periods that may influence the average consumer.

Section 5: Valuation

Likely the most direct part of the presentation, this section is where you lay out the outputs from your valuation exercises. For individual pages on comparable companies, precedent transactions, DCF, etc., you may want to include a few bullets on the assumptions underpinning your thought process. For example, the rationale as to why certain comps were selected.

Ultimately, however, you will want to create a football field to show what implied share price you derived across your valuation methodologies to determine where there is overlap and where your target share price shakes out.

To learn how to produce DCF, comparable companies, and precedent transaction models, check out our Complete Finance & Valuation Course .

Section 6: Final Recommendation

Similar to the Investment Summary, you want to iterate the main arguments of your pitch in your Final Recommendation. One difference is that you will want to place slightly more emphasis on what your analysis, both quantitative and qualitative, tells you. Synthesize what the market is missing and why your target price is justified.

Stock Pitch Tips

While there is no right or wrong view, there are a few general recommendations we think are important to consider when building out a stock pitch:

• Avoid Starting with a Name – Instead of starting off with a specific company in mind, use what you learn from your research to make an informed decision on your company selection and recommendation. This will avoid you falling into the problem of looking for justifications (as opposed to having compelling catalysts to begin with and working backward to select the company).
• Make Your Recommendation Differentiated – Try to avoid obvious choices for pitches, such as FAANG stocks. Not only will this more likely ensure that your views are seen as unique, but also helps to highlight your diligence in stock selection.
• Do the Work Behind the Scenes – In many cases, stock pitches will include a post-presentation Q&A, which will help to showcase who has done the bare minimum and who has gotten in the weeds of knowing the company beyond what is put on PowerPoint.
• Support Your Assumptions – For any projections included in analyses like a DCF, make sure you have an argument for assumptions.
• Stay True to Your Conviction – The last thing you want to do is finish your work and feel like you don’t have a strong case. Using the steps and tools mentioned in this article will help to steer you in the right direction.

Additional Resources

For full case study coverage on the stock pitch, check out our Complete Finance & Valuation Course and PowerPoint for Business & Finance Course which gives more light on the content and structure for a successful presentation.

Other Articles You May Find Helpful

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Introduction

Building a cash flow statement from scratch using a company income statement and balance sheet is one of the most fundamental finance exercises commonly used to test interns and full-time professionals at elite level finance firms.

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Stock pitch guide: Basics, insights, and practical tips

In this guide, we discuss the intricacies of stock pitches. You will discover the crucial elements of a stock pitch, such as the investment thesis, DCF model, and risk mitigation options. You will also learn how to prepare a successful presentation and pitch a stock to any potential investor.

What is a stock pitch?

A stock pitch is a multipurpose tool that helps capital markets professionals identify and evaluate each other as well as promising opportunities. When presented correctly, a pitch stock can increase your credibility within the field and put a start to limitless profitable ventures. 

Stock pitch definition 

A stock pitch is a verbal or written presentation that analyzes the potential of investing in a public company. Stock pitches can both advise pro and against the share and are often used to measure the presenter’s market analysis skills. 

As you will see from the sample stock pitch template below, stock pitches consist of several crucial elements, including company research, market share, investment thesis, investment risks, and stock’s key drivers.

But while the quality and quantity of the necessary information call for an extensive period of time, in some cases, you will need to put a stock pitch together on short notice.

Typical stock pitch scenarios

To know how to do a stock pitch correctly, you need to have a clear objective in mind. This means building your stock pitch according to the target audience’s expectations. Below are the most common applications of stock pitches in modern deal-making. 

Stock pitches are powerful tools for connecting with hedge funds and investment banks. You can include an investment opportunity summary in the form of a stock pitch in your introductory email to showcase expertise or offer services. 

Your priority, in this case, is to keep the delivery concise but valuable.

Pitching a stock has become a crucial part of business schools’ curricula in the past few years. Students can enroll in a stock pitch competition, join investment clubs, or even pitch an investment thesis to existing hedge funds in the prospect of landing an internship. 

Primary research is typically sufficient for educational purposes since the main goal is evaluating students’ skills rather than the practical implementation of their idea.

Interviewing for a job

Hiring managers of private equity (PE), hedge funds, and personal investing firms include stock pitches in the interview process. Your stock pitch will help the decision makers evaluate how much conviction you have in your analytical methods, where you source investment ideas, and how your delivery style aligns with their organizational values. 

Just as at any other job interview, the key elements here are thorough research and confidence.  

Fulfilling job duties 

Consequently, if you had to create two to three pitches during the hiring process, stock pitch development will be a part of your job description. Most hedge funds, or any other established financial institution, expect associates to monitor the industry trends and sometimes initiate internal stock pitch competitions to brainstorm ideas and explore new territories. 

Investment banking and hedge fund professionals must have the deepest understanding of stock mechanics. In such scenarios, you can spend several weeks on a single stock pitch. 

Building a personal portfolio 

Once you master stock pitches, you can use them as a research formula for expanding your own portfolio. While you might not need to convince yourself with an eloquent investment thesis, it is still a good idea to take a deep dig into the company’s background, financials, and key risks. 

While a personal investment pitch is less demanding, stock pitch mistakes will cost you. Therefore, research the public company you want to invest in with the same scrutiny as if you were doing it for a client.

Note: To learn what happens to stock when a company is bought explore our dedicated article.

Stock pitch structure

Let’s review the basic structure of putting your investment ideas into a stock pitch.

Recommendation statement 

The first part of your stock pitch is always a brief summary of your investment idea. You must mention whether you suggest longing or shorting on a specific company and offer a strong reason why. Keep this section concise, as you will have the opportunity to go into more detail in the investment thesis.

When pitching stocks to a hedge fund or any other investor, make sure you are familiar with the target’s portfolio and market outlook.

Company overview

The next step of your stock pitch is the overview of the company background, including the market share and major industry trends. You can also include the stock price and trading volumes data for the company’s entire existence or recent years. 

Create a comparable company analysis template when selecting a pitch candidate from several similar companies. For example, when comparing biotech startups, line up their recent innovations and patents to distinguish the most promising venture.

Investment thesis 

The general idea behind an investment thesis is to state why the market is wrong about the current stock price by evaluating market cap, equity research, PE, market sentiment, and other factors. 

The thesis is the quintessence of your investment ideas that essentially define the value of the stock pitch. To ensure you sound convincing, draft several investment thesis examples before picking the final one.

Price correction catalysts

Back up your investment thesis by mentioning the upcoming events that will affect the stock price and push the market to fulfill the asset’s intrinsic value. These include product launches, acquisitions, cash flow fluctuations, and competitor tactics, among others.  

Quarterly reports and press releases are great sources of typical catalysts for stock pitches. For example, Apple and Samsung presentations are famous for briefly but noticeably influencing the market with new product announcements.

Stock pitch valuation depends on whether you are making a long or a short recommendation. This way, if you suggest longing, you need to prove that the present value is too low. Similarly, argue that the price is too high if you want investors to short.

There are two general valuation metrics used in stock pitches – DCF and NAV. DCF calculates the profitability of investment ideas based on expected cash flows. And NAV divides the value of the cash flow and securities minus liabilities by the number of outstanding shares.

Risks and risk mitigation options

Finally, describe all the key risks associated with your suggested investment strategy and the options to alleviate them. Rely on the combination of fundamental and technical analysis, the company’s market cap, and primary strategies. 

Make sure you only consider risk factors specific to the company. For example, the global recession applies to the entire market, and you don’t necessarily need to feature it in the stock pitch.

Stock pitch template and examples

Below is a generalized stock pitch example you can use as a template. Please note that any information listed below is presented for illustrative purposes and does not serve as a functional trading signal source. 

Stock pitch elements 

1. recommendation statement.

Content: The main reason to consider the stock.

What to include:  

• Whether you suggest to long or short
• Expected value spike or drop

Example quotes: “I recommend longing the ABC stock because it is undervalued by 25% and could increase in value over the next 12-18 months.”

2. Company overview

Content: The background of the company you are pitching. 

• Geographies
• LTM financials
• Base projections
• FY prices and volumes

Example quotes: “LTM financials: $2 billion in revenue; $1.5 billion EBITDA; $1.3 billion FFO.”

3. Investment thesis 

Content: Why is the market currently wrong about the stock’s value?

• Factors that contributed to imperfect pricing
• Reasons why the market hasn’t yet corrected
• Recommendation  

Example quotes: “Historically low P E ratios despite positive earnings and optimistic fundamentals. The market has not yet realized the potential of expanding demographics. It is strategically wise to long this stock within the next month.”

4. Price correction catalysts 

Content: What factors will affect the price in the suggested time frame?

• Product launches
• Expansions 
• Positive FY earnings

Example quotes: “ABC is to finalize three additional acquisitions within the next 6 months, adding to the enterprise of seven previously acquired companies.”

5. Valuation

Content: Whether the current value is too low or too high.

• Model(s) you used to calculate the value

Example quotes: “According to the DCF valuation method presented above, the ABC equity value per share is $120.5.”

6. Risk factors and mitigation options

Content: Risks your investors might face and how to reduce them.

• Risks specific to the company, such as constant innovations in the field, political uncertainties, growing offer
• Mitigation strategies

Example quotes: “Just like ABC, its competitors often announce innovations. This can be alleviated through contact R&D investments.”

How to make a good stock pitch?

Now that you know how to structure a stock pitch, it’s time to take this skill to the next level. Next, we will discuss how to pitch a stock successfully to appeal to even the most meticulous investment competition decision-makers and hedge fund chairs.

1. Believe in your investment ideas

The investment idea at the base of your stock pitch has to be well-researched and backed up by relevant data. But by the end of the day, the best screening tool is your judgment. Below are some tips for getting on the right track when pitching a stock.

Know your investor

Whom are you going to pitch to? Perform the equity research of the hedge fund or private investor you are targeting to understand what companies they usually go for and what their target price could be.

Also, pay attention to the type of transactions they typically finalize. For example, a long-only fund is less likely to be interested in a short recommendation.

Focus on the industries you are familiar with 

An industry overview is much faster and easier if you are familiar with the field. Additionally, you can leverage your Capital IQ access or private equity connections to locate a promising investment opportunity for a stock pitch.

Choose a company with minimum key drivers

Stock pitches are more effective when they are straightforward. Pick a stock price with clear technical analysis patterns and only three or four key business lines. Any more would clutter your stock pitch and might substantially reduce valuation accuracy.

Stay alert for confusing financials

Cash flows and balance sheets must be transparent. No matter how good your investment idea is in theory, messy financials add risk factors and reduce your credibility. What’s more, an established hedge fund would never consider a stock pitch based on unclear numbers.

Look for clear catalysts 

Look for direct catalysts such as acquisitions, innovative patterns, and product launches, as they usually have an evident impact on the market and often result in higher revenue growth. To ensure you make the right choice, analyze average sales associated with similar events in the past and note how they affected the stock price.

2. Invest time in research and valuation 

The research process is arguably the most time-consuming part of your stock pitch. You must sound confident and knowledgeable to convince a private equity firm or a hedge fund to follow your recommendation.

Explore the company and its industry 

There are numerous ways to backup your investment idea with data. Start by exploiting free resources, such as the company’s press releases, annual reports, and stock charts. Take your time to understand the company’s business model and reach out to their representative if something isn’t clear.

You can also set up a personal trading account to apply your theory on a smaller scale. There are two approaches to take, depending on how much time you have.

Get your relative valuation from public-access tools, such as Yahoo finance. In case your stock pitch is for presentation purposes only, basic data will usually be enough.

• In-depth way

Consult investment professionals to get a deeper insight into your stock pitch. Use professional social networking channels to connect with partners, major clients, suppliers, etc.

Build a DCF valuation model 

DCF or Discounted Cash Flow model is a very common approach to evaluating investment potential. The formula takes into account the cash flow period, interest rate, and the number of years before the future cash flows get realized.

DCF is an extremely popular form of valuation metrics, so it is virtually compulsory in stock pitch competitions. Organize your calculations in a spreadsheet and ensure to keep it below 300 rows to save investors’ time. 

3. Present your stock pitch well

The delivery style for your pitch varies based on the audience. But there are a few universal suggestions that will help you present stock pitches to professional investor firms, private equity experts, and anyone else.

• Lead a conversation instead of making a speech

Your stock pitch presentation should open the floor for additional ideas, concerns, and questions. Once you express your investment idea and deliver the investment thesis, address any queries before moving on.

• Get ready for some Q&A

Extend the conversation at the end of the stock pitch. Be ready to answer any questions regarding the stock’s current price, the company’s quality, and the risks associated with this public company’s stock. Thorough research will be a great asset at this stage.

• Admit the gaps in your knowledge

Even the deepest investment research will not cover the whole picture. When stock pitching, prepare for questions you won’t have answers to. Acknowledge the inquirer and get back to them with the response after the stock pitch. This is significantly easier during written pitches, as you can research as you go.

What to avoid when making a stock pitch

So far, we’ve covered most of the stock pitch do’s. Now, it is only fair to mention the don’ts as well. Avoid the next three approaches to investment idea sourcing, whether you are participating in an undergraduate stock pitch competition or applying for an investment banking or hedge fund position. 

Quantitative screening

Quantitative screening is one of the rudimentary forms of volume analysis that relies on mathematical principles alone. Unlike relative valuation, this approach does not consider factors beyond the dry data, which results in substantial valuation inaccuracies. 

Moreover, predictions and trailing in technical analysis follow patterns that are too impractical compared to fundamentals.

Hedge funds might consider elements of quantitative screening in your stock pitch only if you back it up with substantial catalysts. 

Sell-side ideas

Sell-side analysts are too involved to deliver relevant data. What’s more, once the stock pitch idea is out, it quickly loses its P E value with the drop in originality. Take pitches from brokers with a pinch of salt and rely on your own research instead. 

Hedge funds’ public disclosures and hedge fund word-of-mouth

A hedge fund might also not be a very reliable idea source. For one, it is practically impossible to evaluate the actual state of every company’s quality and overall portfolio. Misinformation and generic ideas are the worst enemies of your stock pitch, so it is better to steer clear of them.

Stock pitch interview questions to research

As already mentioned, you must be ready to protect your investment opportunity pitch with information. Below are the examples of questions a hedge fund or any other buy-side interviewer can ask during or after your stock pitch.

• What techniques did you use to form your investment thesis?
• Why is this a good investment right now?
• What are the primary revenue drivers?
• What is the company’s market share?
• How does the company stand out from the competition?
• Who manages the company, and who serves on the board?
• What is the customers’ feedback about the company in general and on its recent products in particular?
• Is it possible that the company is undervalued due to the discounted value of its cash flows?
• Do you have any other stock pitches in the same or a different field?
• Why are you pitching this idea to me/our hedge fund?

Stock pitch: Final takeaways

The quality and consistency of stock pitches play a crucial role in forming market key drivers. To successfully pitch a stock, it is essential to cover all the contributing factors, from valuation metrics to potential return presentation.

The foundation of every effective pitch is a deep understanding of the investor and sufficient research. While it is virtually impossible to get ready for every question and concern, the more you know about the company background and performance, the higher chances your pitch has.

Finally, it is best to continuously explore the market and draft pitches on any interesting instrument. This will allow you to build confidence and credibility for any future presentations.

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Stock Pitch Guide: How to Pitch a Stock in Interviews and Win Offers

If you're new here, please click here to get my FREE 57-page investment banking recruiting guide - plus, get weekly updates so that you can break into investment banking . Thanks for visiting!

Numi Advisory is an expert in hedge fund and equity research recruiting , having advised over 600 clients by providing career coaching, mock interviews, and resume reviews for people seeking jobs in equity research, private equity, investment management, and hedge funds (full bio at the bottom of this article).

If you want to know how to pitch a stock , it would be great to have a full stock pitch guide in one article… right?

Well, you’re in luck: in this article, we give you real stock pitch examples and templates that you can use in hedge fund, asset management, and other buy-side interviews.

The stock pitch matters a lot in these types of interviews because it is literally what you do on the job, and it’s the best way to set yourself apart.

Also, interviewers will ask you to pitch a stock, often multiple times, if you want to get a job at a hedge fund .

Step 6: Favor Companies with Clear Catalysts

Focus on the following key points, investment thesis examples, stock pitch templates & examples.

Let’s start with the most important part: stock pitch examples for real companies. I’ll share two below from our financial modeling courses :

• Jazz Pharmaceuticals [JAZZ] – [SHORT] – Word | PowerPoint
• AvalonBay [AVB] – [LONG] – Word | PowerPoint

The Jazz stock pitch turned out to be incorrect over a 12-month time frame, but it was correct over a ~6-month time frame when the stock price fell.

The AvalonBay stock pitch turned out to be correct , with the company returning over 25% (including dividends) compared with an overall S&P gain of ~10% in that time frame.

I’m not going to share the full financial models, but you can get a sense of the AVB valuation by looking at our tutorials on REIT NAV Models and REIT Valuation .

For the Jazz model, there’s a whole treasure trove of DCF modeling tutorials on our YouTube channel.

What is a Stock Pitch?

Definition: A stock pitch is a short write-up or presentation that argues for or against investing in a public company’s stock, and which is backed by a strong investment thesis, data, valuation metrics, catalysts, and an assessment of the risk factors.

You use a stock pitch in the following ways:

• Networking: For example, you could look up contact information for hedge fund professionals and include your pitch in your introductory email to them.
• Interviews: You’ll be asked to pitch a stock all the time in hedge fund and asset management interviews.
• Investment Clubs and Competitions: You’ll have to present your views, argue why a security is mis-priced, and then convince others that you’re right.
• Personal Investing: If you have a personal trading account and you invest in individual stocks, you can use stock pitches to hone your reasoning and make better picks.
• On the Job: Finally, if you’re working at a hedge fund or other investment firm, you’ll research and pitch stocks on the job regularly. That is the job!

The bottom line: if you want a hedge fund career , or a career in closely related fields, you’ll  need some solid stock pitches to interview successfully for Hedge Fund Analyst roles .

And if you want to start a hedge fund , you’ll need to generate a steady stream of stock pitches.

Usually, interviewers, firms, and competition judges won’t give you a specific company to pitch; it’s up to you to do the research and find one.

If they do give you a specific company, then it’s probably a time-pressured case study where you have 2, 3, or 4 hours to skim the company’s filings, build a simple model, and make a quick pitch based on that.

This article is geared toward longer, “take-home” stock pitches where you have a few days up to a week to finish the pitch, but the basic structure applies to time-pressured pitches as well.

If the firm you’re interviewing with does not give you an explicit time limit, ask for it , along with the formatting requirements and anything else they want to see.

Finally, note that we are only covering stock pitches here – not credit pitches or distressed debt pitches or global macro pitches involving FX, commodities, or sovereign bonds.

You can use the same structure for those, but specific elements of the pitch, such as the valuation, catalysts, and risk factors, will differ.

The Ideal Stock Pitch Structure

We recommend the following structure for all stock pitches:

• Recommendation – State whether it’s a Long or Short (i.e., whether you think its stock price will increase or decrease) and what the company should be worth. Do not give a “neutral” recommendation unless they assigned the company to you.
• Company Background – What are the company’s products/services, how much revenue/EBITDA does it generate, what is its market cap, and what are its current valuation multiples? Bonus points for a price/volume graph.
• Investment Thesis – The stock is priced imperfectly because of these 2-3 key factors. The market has not factored them in because of reasons X and Y. The market is wrong, and there’s a chance to gain significantly by longing/shorting this stock.
• Catalysts – Certain key events in the next 6-12 months will cause the market to “realize” this pricing imperfection, resulting in a price correction and the potential to make money. Key events might include new product launches, acquisitions, earnings announcements, divestitures, clinical trial results, and financing activities.
• Valuation – For a Long recommendation, you need to show that the stock is undervalued (e.g., right now it’s trading at $25, but there’s a reasonable chance it’s worth $35-$40); for a Short recommendation, you show why the stock is overvalued .
• Risk Factors and How to Mitigate Them – You lay out the top 2-3 market and company-specific reasons why your investment thesis might be wrong, and then explain what you can do to mitigate these risks. Even if you’re wrong, could you limit your losses?

If this is an initial pitch for networking or interviews, keep it short.

“Short” means “2-3 pages at the most,” as in our examples above.

Make it longer only if you have a lot of time to present, you’ve been asked to create a slide presentation, or you’ve been asked for a certain number of pages.

Building an Investment Thesis: Stock Pitch Idea Generation

“OK,” you say, “that structure sounds nice. But where am I supposed to get ideas in the first place? And how do I complete the research process and build a valuation in only a few days?”

The blunt truth is that you need to be following industries or companies already to have a good shot of finishing a stock pitch, even a 2-3-page one, in only a few days.

If not, then you should reevaluate whether or not you want a career in investing or hedge funds.

The best investors do it because they’re passionate about the process itself ; pitching stocks is their hobby.

So, ideally, you already have in mind companies that are undervalued or overvalued and whose stock prices could change significantly in the next 6-12 months.

How to Find a Company to Pitch, Step-By-Step

But let’s say you just found out about an interview in 4-5 days, you have nothing prepared, and you don’t follow specific companies.

Here’s the process I’d recommend in that case:

Step 1: Research the Fund’s Strategy

Before you even open Excel or Word, you need to make sure you’re searching for a company that is a relative match for the fund’s strategy. For example:

• Good Idea: Short for a recently public tech startup.
• OK-But-Not-As-Good Idea: Long for an undervalued, mature tech company.
• Bad Idea: Merger arbitrage pitch for a life insurance company spin-off.
• Good Idea: Long for an undervalued industrial tools manufacturer.
• OK-But-Not-As-Good Idea: Long for a misunderstood consumer/retail company amid a turnaround.
• Bad Idea: Short for an overpriced biotech startup.

It’s more important to match the strategy than it is to match the industry.

That’s why the “bad ideas” above are strategy mismatches.

Step 2: Start with an Industry You Know Something About, or That Lends Itself to the Fund’s Strategy

For example, if you’re an engineer, pick the technology , telecom, or media industries.

If you’ve done internships at retail companies, pick consumer/retail .

If you like whiskey even more than I do, pick the food & beverage industry.

Avoid industries that are highly technical or that have specific accounting/valuation methodologies (e.g., oil & gas or commercial banks ) – unless the fund specializes in them.

Also, keep in mind that certain industries will match the fund’s strategy more easily than others.

You can easily find over-priced and over-hyped tech and biotech startups that are ideal “Short” candidates, but in an industry like chemicals or industrials, it’s easier to find mature, undervalued companies that might be long-term investments.

Step 3: Screen for Mid-Sized Companies in the Industry

If you don’t have Capital IQ access, the best screening tool is https://finviz.com/ .

Here’s an example healthcare screen , which you can sort by sector, industry, country, market cap, and other criteria.

If the biggest companies in your industry have market caps of $100 billion and the smallest have market caps of $50 million, you should pick something in the middle: maybe the $1 – $10 billion range.

If you can screen by revenue, aim for companies with revenue in the hundreds of millions to low billions USD.

Step 4: Find Companies with 3-4 Key Drivers, At Most, and Relatively Pure-Play Businesses

Do not pick a company with 20 different business lines where each segment depends on different assumptions.

Consumer/retail companies are great because revenue depends on the number of stores and the average sales per store, and the projections are straightforward.

On the other hand, the maritime/shipping industry is not ideal because you need to make granular assumptions for different types of ships in the fleet.

In our example stock pitches here, I picked Jazz Pharmaceuticals partially because it had a manageable number of products – the main one, two smaller ones, and several even smaller ones that we consolidated:

Step 5: Eliminate Companies with Messy Financial Statements

If the company’s Cash Flow Statement is four pages long, or its Income Statement has 13 non-recurring charges, or its Balance Sheet has 30+ items on each side, drop it.

Yes, you can simplify and consolidate the statements, but that takes up precious time that you don’t have.

If you’re down to 2-3 companies by this point and you can’t decide, pick the one with the most concrete, impactful catalysts .

A company that just announced an acquisition or divestiture, a major product or clinical trial results, or a major strategic pivot is a good bet.

Product launches and expansion strategies are good catalysts because it’s easy to argue that future growth will be higher or lower than expected.

If you’ve done everything above but still can’t decide, pick a company randomly and move on.

One final note: do not rely on equity research reports to find companies or investment theses.

Equity research is useful for gaining background knowledge and finding market data, but you should not use it for building your investment thesis.

Stock Pitch Research and Valuation Process

You will not be able to read thousands of pages if you have only a few days or a week, so we recommend the following steps:

• Research the Company and Industry – Get the company’s latest annual and interim reports and its most recent investor presentation. You can also search for press releases about the company’s products/services.
• Build a Simple DCF-Based Valuation – You should go beyond percentage growth rate assumptions for revenue and expenses, but you don’t need a 5,000-row spreadsheet, either. Aim to project revenue with Units Sold * Average Selling Price in the main segments, and link the key expenses to Units Sold or the Employee Count. That might result in a DCF model that’s around 100-300 rows; a 3-statement model is unnecessary. You’ll need a sense of the Public Comps as well, but you should not spend time scrubbing the data. Use Capital IQ or FactSet if you have them, or Finviz and Google Finance if not. See our tutorial on comparable company analysis for examples.
• Time Permitting, Do Real-Life Research – If you have the time to do so, spend a few hours speaking with people in real life to find out more about the overall prospects of the company and industry. For example, you could use LinkedIn to look up suppliers, partners, and employees, contact them via email, and ask if they’re willing to speak with you for a few minutes. In exchange, you can explain how investors view their industry.

This process is known as a “channel check,” and it’s a great way to set yourself apart with modest effort. A direct quote from a manager at the company’s key supplier is far better than a more complex financial model.

• Your Angle: How do you see this company differently from the rest of the market? Will it grow more quickly/slowly than expected? Will it be more/less profitable than expected? Will its new products and services perform better/worse than expected?
• Valuation Inputs: How do these points translate into model assumptions in Excel? Research means nothing unless you can reflect it in your revenue, expense, and cash flow assumptions.
• Implied Value: What does the output of your valuation look like? Is the company overvalued, undervalued, or valued appropriately right now? How does that change in different cases, such as Base, Upside, and Downside?
• Catalysts: Which 2-3 events or potential events over the next 6-12 months could cause this company’s stock price to change in the direction you predict? Companies can stay mispriced forever if the market doesn’t realize it. Catalysts are particularly important for “Short” recommendations because they are so dependent on timing.
• Risk Factors: Why might your recommendation be wrong? What are the top 2-3 factors that could result in the company’s stock price moving in the other direction? And how could you mitigate these risks?

Once you’ve done this, you should be able to create a short, 2-page outline based on your findings.

Here are the outlines we created for AvalonBay and Jazz Pharmaceuticals:

• Jazz Pharmaceuticals [JAZZ] – SHORT – Stock Pitch Outline
• AvalonBay [AVB] – LONG – Stock Pitch Outline

After you have this outline, you’ll expand it to create the full stock pitch.

You can understand the research and valuation process in-depth and financial modeling in Excel by completing our courses.

The “Core” course linked to above has a simple example of a valuation, DCF, and stock pitch, while the Advanced Financial Modeling course has a detailed example backed by outside research and industry data:

Advanced Financial Modeling

Learn more complex "on the job" investment banking models and complete private equity, hedge fund, and credit case studies to win buy-side job offers.

Stock Pitch Section 1: Recommendation

In this section, you present the most convincing arguments for your pick. We recommend the following structure:

• Long or short, current share price, the percentage by which it’s mispriced, and the top 2-3 reasons why the stock price will change in the next 6-12 months.
• Two or three potential catalysts that will cause the stock price to change in the next 6-12 months.
• Two or three investment risks (company-specific or market-specific) and how you might mitigate those risks through other investments, call or put options, etc.

Here’s our Recommendation slide for Jazz Pharmaceuticals:

If you want a better visual style for this one, see the summary slide at the end instead:

It is not a great idea to give specific probabilities here (e.g., “75% chance of gaining 30% and a 25% chance of losing 15%”) because the first question in any interview will be, “So, how did you come up with those probabilities?”

Instead of giving probabilities, focus on best-case and worst-case outcomes:

• Longs: Aim to show that the company is modestly undervalued in the Base Case (e.g., 20-30%), dramatically undervalued in the Upside Case (50%+), and only slightly overvalued in the Downside Case (5-10%).
• Shorts: Show the company is modestly overvalued in the Base Case, only slightly undervalued in the Upside Case, and dramatically overvalued in the Downside Case.

You are demonstrating that there’s an asymmetric risk profile , i.e., higher potential gains than potential losses.

Stock Pitch Section 2: Company Background

Here, you list the company’s key financial stats (revenue, EBITDA, market cap, and current multiples) and a quick overview of its business segments and products/services.

Don’t just copy in the descriptions from the filings or annual reports – summarize the most important points and leave out the corporate speak.

In the PowerPoint version of the Jazz stock pitch, we added a price-volume chart because of the extra space available:

In the Word version, we left out the chart and wrote the bullets in sentences instead.

Stock Pitch Section 3: Investment Thesis

In the investment thesis section, you must point out something that everyone else is missing or misunderstanding about the company.

In the Jazz stock pitch, we make very simple arguments: generics that threaten the company’s key product are likely to arrive sooner than expected, the company’s pricing power is lower than expected, and its new drugs have lower-than-expected market sizes :

We link each factor to a specific per-share impact on the company’s stock price to show how the misplaced mainstream view is more than theoretical.

Besides arguments about pricing and market size, there are many other ways to build an investment thesis.

For example, here’s what we use for AvalonBay in the apartment REIT sector:

This is a Long recommendation, and the company is in a sector that’s highly sensitive to macroeconomic conditions, so the main idea is:

“Even if economic conditions worsen, the company won’t be affected too badly, and it might even benefit in some ways; also, the company’s development pipeline is stronger than expected and will deliver higher growth when the first deliveries arrive.”

Other investment thesis examples include:

• Misunderstood Acquisition or Divestiture: The company’s true upside from a deal will be far higher or lower than expected, and the rest of the market hasn’t yet factored it in because they don’t understand the cost synergies or integration plan.
• Lipstick-on-a-Pig Company: The company presents itself as a “SaaS” or “AI” play, but in reality, it’s an overhyped services business that should trade at far lower multiples.
• Misunderstood Threats: The market expects the competition to beat the company in Areas X and Y, or it expects the company to fail to execute Initiative Z, but it’s wrong for the following reasons.
• Financial Statement Shenanigans: The company is recognizing revenue too aggressively, exaggerating its reserves, or playing games with capitalized vs. expensed costs, all of which affect its cash flows and, therefore, its valuation.

Stock Pitch Section 4: Catalysts

Catalysts should be events or potential events that might occur within the next 6-12 months.

Most hedge funds operate on relatively short time frames, so if specific events will not change the company’s stock price for another 3-5 years, the company is a bad pick (for more on this, see our hedge fund overview article ).

Also, it’s much more difficult to predict the impact of events that far into the future.

“Hard Catalysts” are events that are definitely going to happen and will produce a specific result : earnings reports, the announced outcome of clinical trials, or the announced acquisition of a smaller company.

“Soft Catalysts” are potential events that may or may not happen and where the time frame is less certain, such as a planned international expansion, a change in market share, or the launch of a future competitive product with an unknown release date.

You should prioritize “Hard Catalysts,” but it’s OK to use a mix of both – as we do for Jazz and AvalonBay:

Catalysts are most important for Short recommendations because overvalued companies tend to stay overvalued until a specific event, such as an earnings report far below expectations, suddenly makes everyone come to their senses.

If a company is high-quality, appropriately valued or undervalued, and has solid growth potential, its share price might increase gradually over time, and specific events are not as essential to your investment thesis.

Stock Pitch Section 5: Valuation

In this section, you must resist the urge to paste in 538 sensitivity analysis tables and instead summarize the output, with a focus on the implied share price in different cases.

For Jazz Pharmaceuticals, we used the traditional valuation football field , but we summarized the long-term projections on the next slide and showed sensitivities after that:

Focus on the DCF (or DDM, or NAV Model depending on the industry) because it demonstrates your differentiated, long-term views of the company more effectively than the other methodologies.

You can support the intrinsic analyses with valuation multiples, but you can’t base your entire argument on them.

Valuation multiples fluctuate for so many different reasons that you can’t just say, “Aha! Company X trades at multiples that are 20% lower than Company Y, despite similar growth rates and margins – therefore, it’s undervalued by 20%!”

It’s quite important to include different scenarios, such as Base, Upside, and Downside cases linked to the company’s revenue and expense drivers.

If you’ve only looked at a single case in which the company grows by 10% per year, it will be very difficult to answer questions about the risk factors, the worst-case scenario, or the potential losses if your thesis is wrong.

The valuation must tie in directly to the asymmetric risk profile , and your audience must read it and think, “OK, it seems like there’s more to gain than to lose here.”

Stock Pitch Section 6: Risk Factors and Mitigating Factors

In this section, you cross-examine your investment thesis and point out all the flaws and reasons why it might be wrong.

The easiest method is to reverse the catalysts: for example, what if the company can raise prices by more/less than expected? Or, what if its new drugs turn into a giant success/failure? What if its clinical trial results are unexpectedly positive/negative?

Risk factors must be specific to the company to be effective.

So, don’t list “There could be a global recession!” or “Oil prices might plummet!” or “The company might get displaced by robots and AI!” as risk factors.

Yes, those are all risks, but they’re general risks that will impact a wide range of companies – not yours alone.

We followed the “reverse the catalysts” approach in the Jazz stock pitch, but one of the risk factors relates to early-stage drugs not mentioned in the catalysts section:

You should also write something about how to mitigate these risks.

The obvious approach for a Long/Short Equity pitch is to use call or put options, or stop-loss or stop-limit orders to cap your losses at a certain percentage.

But you could also recommend longing or shorting other companies’ stocks that might move in the opposite direction, or using other investments to reduce the risk in some way.

The worst-case scenario is worth mentioning as well, especially in Long pitches: if the company completely crashes, what might its Balance Sheet be worth in a liquidation scenario?

Could it sell non-core assets or other divisions if something catastrophic happens?

For Short pitches, what happens if the company’s stock price jumps 200%? How high could it realistically go, based on your valuation, and where would you cap your losses?

Presenting the Stock Pitch

The presentation of your pitch varies, but if you’re doing it live, expect an extended Q&A session or “healthy debate” after you finish.

The investment professionals will dig into your assumptions, question specific numbers, ask about your primary research, and assess how much conviction you have.

I wouldn’t recommend taking public speaking classes or joining Toastmasters or anything like that because your pitch is more of a conversation than a “speech.”

However, you should make notes about the key numbers, what your different sources said, and the industry stats.

And if you don’t know something, you should admit it upfront.

Then, offer to look it up and follow up with them after the interview… and make sure you follow through and do that.

Even simple valuations have a lot of numbers and assumptions, so there’s a decent chance you won’t be able to remember the source for one specific number.

Stock Pitches: Anything Else?

Some books, guides, and articles about stock pitches recommend that you include other factors in your pitch as well:

• The existing shareholders and how they’ve changed over time.
• How “crowded” the trade is, i.e., whether or not many other funds have also invested, and the short interest.
• The stock’s performance over the past few years.
• The liquidity and average daily trading volume of the stock.
• How you’ll enter and exit the position without affecting the stock price.

If you have the time and resources, and you’re allowed to make a longer pitch, sure, you can include these points.

But one problem is that you’ll need Bloomberg access to research these points in-depth, which may not be realistic if you’re a student or not yet in the finance industry.

Also, some of these issues are on-the-job considerations – critical when you’re making the trade in real life, but not as essential if you’re presenting the initial idea to generate interest.

The Top Stock Pitch Mistakes To Avoid

I’ve reviewed hundreds of case studies, models, stock pitches, and investment recommendations over the years.

Here are the top mistakes I’ve seen:

• Unnecessarily Detailed Model – Some candidates spend all their time worrying about minutiae on the financial statements rather than the key drivers. You should create a moderately detailed model (100-300 rows for the DCF) and spend the bulk of your time researching the company, speaking with real people, and honing your investment thesis.
• Inability to Support the Main Assumptions – Why are you assuming higher revenue growth or margins in a certain year? What historical performance, research, or channel checks support that assumption?
• Poor or Non-Existent Catalysts – Your catalysts should be short-term (6-12 months), they should represent specific per-share impacts, and 1-2 of them should be “hard” rather than “soft.” Macro catalysts can work, but only if you explain how they will affect your company specifically .
• Poor or Non-Existent Risk Factors and Mitigants – The most common mistake is to leave out the risk factors altogether, or to give risk factors that are too vague. Many candidates also fail to explain how to mitigate the risks.
• Lack of Conviction – Many candidates walk in expecting to take the SAT or GMAT and coast through the process, but stock pitches are very, very different. If you are not passionately convinced that your idea is great, it will be very obvious to everyone, and you won’t win the offer.

Stock Pitches: What Next?

“Practice makes perfect” is a cliché, but it’s also 100% true with stock pitches.

To create high-quality stock pitches, you’ll need to practice with at least 2-3 companies before you get a feel for it.

And if you don’t yet have a good understanding of accounting and valuation, add on several months to learn those.

For interview purposes, you should prepare 2-3 ideas – at least 1 Long and 1 Short – and you can adapt them to different funds as necessary (e.g., you could recommend underweighting your Short pick if you interview at a long-only fund).

If you follow this guide, you should have a good start on those first 2-3 pitches.

And if you want personalized assistance with your stock pitches, I highly recommend the services of Numi:

Numi Advisory has provided career coaching, mock interviews, and resume reviews to over 600 clients seeking careers in equity research, private equity, investment management, and hedge funds. With extensive firsthand experience in these fields, Numi offers unparalleled insights on how to ace your interviews, excel on the job, and create and present great stock pitches.

Numi customizes solutions to each client’s unique background and career aspirations and helps them find the path of least resistance toward securing their dream careers. He has helped place over 150 candidates in leading buy-side and sell-side jobs. For more information on career services and client testimonials, please contact  numi.advisory@gmail. com , or  visit Numi’s LinkedIn page .

If you liked this article, you might be interested in Investment Banking Pitch Books: Design, Examples & Templates .

About the Author

Brian DeChesare is the Founder of Mergers & Inquisitions and Breaking Into Wall Street . In his spare time, he enjoys lifting weights, running, traveling, obsessively watching TV shows, and defeating Sauron.

Free Exclusive Report: 57-page guide with the action plan you need to break into investment banking - how to tell your story, network, craft a winning resume, and dominate your interviews

Read below or Add a comment

20 thoughts on “ Stock Pitch Guide: How to Pitch a Stock in Interviews and Win Offers ”

Thank you so much for this. I have an interview/case study coming up and I really needed this.

Thanks! Glad to hear it.

Hey – thank you for this! I was wondering whether it is possible to pitch a long for a firm that has just announced that it is going private? Is this alright or would this impact the quality of the pitch?

I would probably not do this unless it’s something like a merger arbitrage fund or some other event-driven fund where you’re making an argument that the firm will definitely be acquired, and the market is underpricing the odds with a spread that’s far too wide (or something like that). Otherwise, long pitches for firms that are set to be acquired usually aren’t compelling because the potential upside is too low once the deal announcement has been made.

Great article. Thanks for publishing. I suggest adding some caveat regarding sending the stock pitch to professionals in introductory emails. In my experience most professionals cannot accept external pitches without going through compliance first, so sending it proactively might oftentimes be unwelcome.

I agree that you have to be careful with these sorts of things, but in most ER/HF/AM interviews and even in networking interactions, they will ask you for some type of stock pitch as part of the process. So I’m not sure if there’s a huge difference if they’re going to ask for it later anyway. One option might be to send a short outline but not a full “pitch” in the intro email, or to simply state that you’ve prepared 1-2 pitches and ask if they want to see them. My experience is that most finance professionals take stock pitches as seriously as they take Seeking Alpha articles, and they use pitches mostly to evaluate who knows at least something vs. who is completely clueless.

Hello Brain, very fantastic investing lesson. Can I use this article and your two attachment as template to teach high school students write stock analysis report? They only have template with buy recommendation but not for Sell and Hold recommendation. Thus, I think students need two more example to wirte their analysis report.

Best Regards, Kim

Sure, but please link to the URL of this original article on this site.

I am a doing a stock pitch and part of my pitch they said i should do Competitive dynamics and Regulatory framework. Do you know what it means?

They want you to summarize the company’s main competitors in the industry, how much overall competition there is (think in terms of market share), and any special regulatory burdens or rules the company has to follow.

You mentioned that we should prioritize “hard catalyst”. But I wonder if the hard catalyst, in most cases, has already been priced in the stock price?

In addition, how to know what’s the market view of this stock? For instance, if I think the company’s revenue growth rate is 8% in the future, how do I know the market view of the revenue growth rate?

You would have to research the company and its stock price history to see if various catalysts are priced in. There’s no way to tell universally, as some companies are repeatedly misunderstood by the market and others are not. The easiest way to tell is to look at how many times the company has had “surprise” earnings reports in the past.

For the current market view of the stock, find consensus estimates on Capital IQ or if you don’t have Capital IQ, look on sites like Yahoo Finance or FinViz for estimates.

Thank you for recommending the stock pitch coaching service at the end of the post. I wonder if there is any stock pitch coaching service with a website that gives more transparent information, or any widely-used stock pitch coaching service?

There are other stock pitch coaching services out there, but I have no firsthand experience with them and cannot speak to their quality. The individual running this service is employed as a PM within the industry, so he doesn’t want to give his identity (but I know him in real life and can vouch for the services). But if you want a service that gives the person’s name and full employment information, you might be able to find that somewhere.

I hope you are having a nice day. I’m currently in a stock pitch competition. I need a presentation, a written report and also a 8-10 minutes long script. Is there anything that I should watch out for or do extra that will put me apart from the other contestants?

Also, any suggestions on what kind of company is best to pitch for in this kind of competitions?

Would really appreciate your help.

We have many examples of stock pitches on this site, so I would suggest reviewing those for ideas. We unfortunately cannot comment or help with homework assignments or competition projects. My advice is to pick a lesser-known company that you have followed and know much better than the judges.

Hi, Brian. I am currently interviewing for an AM company. If they asked me to give some opinions on their current positions, does it mean that I am asked to do a pitch? I think my interviewers mush have very solid opinions about the stocks the company is holding… Or if they just would like to know my brief opinions? And in either way, how long should my answer be? within 1 minute?

Not necessarily a formal stock pitch, but you should have a basic view on what they hold and whether you recommend buying, holding, or selling some of the stake. Maybe 30 seconds for an initial opinion.

Hi Brian, I have a final round interview with a BB bank (non-US branch office) for the ER analyst role in 2 weeks. I’m a target school but have never done a stock pitch or valuations before. Do you have advice for me given the large amount of work required to do stock pitch? Should I just admit that I’m new to finance but is willing to learn more based on my past experience with transferrable skills? Or should I learn as much possible from now and build from scratch and put up one? But I don’t think I would be confident if they ask me detailed challenging questions though. Thank you!!

Do some research and build a very simple valuation, or just use simple multiples, and explain that you are new to finance but did the most you could in ~2 weeks. Keep your analysis very simple and rely more on the qualitative factors than the quantitative/valuation ones.

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Top 10 Stock Pitch Deck Templates with Examples and Samples

Deepika Dhaka

“Success in the stock market doesn't come from guessing the future, but rather from understanding the present," these words from renowned investor Peter Lynch encapsulate the essence of sound investment strategies. 

In this blog post, we will explore the art of stock pitching using a Stock Pitch Deck Template.

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Highlight your company's extensive reach, demonstrating a diversified presence across multiple regions and markets. This slide provides a visually engaging presentation of your geographical expansion strategy, instilling confidence in potential investors. Showcase the number of products, revenue, employees, and clients in this Geographical Reach PPT Slide to emphasize your global competitive advantage and unlock new growth opportunities.

Template 8: Company Valuation Analysis Template for Stock Pitch 

This template empowers you to comprehensively analyze your company's valuation, showcasing critical financial metrics and growth projections. Present a compelling narrative backed by robust valuation methodologies, impressing investors with your thorough analysis and strategic insights. Demonstrate the real value of your company by downloading this PPT Template.

Template 9: Discounted Cash Flow Analysis Template 

Calculate and present the intrinsic value of your investment opportunity using this comprehensive template. Use discounted cash flow models to project cash flows, assess risk factors, and determine the fair value of your stock. Impress investors with a data-driven approach and make a  perfect case for investment success with our Discounted Cash Flow Analysis Template for the stock Pitch Deck.

Template 10: Price Target PPT Slide

This slide empowers you to present a compelling price target for your stock based on thorough analysis and market insights. Showcase your expertise in forecasting and provide a clear and persuasive target price. This ensures investors queue up for a piece of the stock action. Elevate your stock pitch with our Price Target PPT Slide and unlock the potential for significant returns on investment. Download now!

Powerful persuasion for investors

Now that you have seen how using a template is always a good idea to pitch your stock, downloading this presentation is time to bring this knowledge into action. You will not regret this investment, as it equips you with the tools to deliver a powerful and persuasive pitch that captivates investors and drives success. Get ready to make a lasting impression and seize opportunities with confidence.

PS. If you are looking for Fundraising Pitch Decks, here’s a handy guide with the most popular templates, samples, and examples.

FAQs on Stock Pitch Deck

What is a stock pitch deck.

A stock pitch deck is a presentation or a set of slides that investors use to pitch a particular stock or investment opportunity to potential stakeholders. It includes key information about the company, industry analysis, financial data, growth prospects, competitive advantages, and a persuasive argument for investing in the stock.

How to build a stock pitch deck?

To build a stock pitch deck, start by conducting thorough research on the company and the industry it operates in. Gather relevant financial data, market trends, and competitive analysis. Create compelling slides that cover the company overview, investment thesis, growth prospects, risks, valuation analysis, and potential catalysts. Ensure a clear and persuasive narrative flow supported by visual aids and data-driven insights.

How do you pick a stock to pitch?

When picking a stock to pitch, it is crucial to do your homework. Conduct fundamental analysis by assessing the company's financial health, industry trends, competitive positioning, and growth prospects. Look for stocks with solid fundamentals, a sustainable business model, and a compelling investment thesis. Consider market conditions, potential catalysts, and the stock's risk-reward profile.

How long is a stock pitch?

The length of a stock pitch can vary depending on specific requirements and time constraints. Generally, a stock pitch ranges between 10 and o 20 minutes for oral presentations. However, the pitch deck can be more extensive, with  15-30 slides covering all essential aspects of the investment opportunity. It's important to balance providing comprehensive information and keeping the presentation concise and engaging.

How do stock pitches work?

Stock pitches work by presenting a  to-good-to-be-missed investment opportunity to potential investors or stakeholders. The presenter introduces the company, highlights its key strengths, and makes a persuasive argument for investing in the stock. The pitch often includes analyzing financial data, market trends, competitive advantages, valuation, and potential catalysts. The goal is to convey the investment thesis, showcase the potential returns, and address any concerns or risks associated with the investment, ultimately convincing investors to take out their chequebook. 

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15 Tips for Presenting Impressive Stock Pitches

If you survey a room of 100 people and ask them to self-evaluate their professional skills, the vast majority will say they are “above average.”  This unworkable math has been studied by psychologists who find the human mind is hard-wired to overestimate our abilities, possibly as a survival technique dating back to our caveman days.  Unfortunately, too many equity research analysts assume they’re great presenters, which runs counter to the scores of evaluations I’ve seen and heard over the years from portfolio managers and institutional salespeople.  As much as it might seem like common sense to present an idea to others, it’s actually quite complex…if you want to get it right.  Preparing for an 18-minute TED talk can take hours or even days in order to deliver in a way that will resonate with the audience.

I’m not suggesting analysts should spend days preparing for each stock pitch, but it should involve thoughtful preparation, even for experienced analysts.  To help break down these best practices, I’ve summarized them under 1) Content, 2) Slides and 3) Delivery.

I’m not suggesting analysts should spend days preparing for each stock pitch, but it should involve thoughtful preparation

• To ensure your presentation is clear, thorough and concise, create an outline first (you may want to use PowerPoint’s “outline” view found on the “View” ribbon to make it seamless in building your presentation)
• Remember the presentation isn’t to show how much you know, but rather to provide the audience the insights they need to make an investment decision . This philosophy can cut a 30-minute presentation down to 3 minutes.  The audience will ask questions if they need background.
• A ware: Make others aware of alternative scenarios and views, as well as adjustments to your thesis
• D ifferentiated: Explain how you differ from the consensus thinking about the stock and its catalyst(s)
• V alidated: Support your out-of-consensus view with independent research
• C onclusion-oriented: Be conclusive about stocks and their catalysts (the first slide should start with a conclusion)
• E asy to Consume: Make it easy for others to consume by avoiding highly-specific jargon, complicated charts and dense tables of numbers
• Start with your conclusion, which should be stock-specific (e.g. becoming more/less bullish, upgrading/downgrading, raising/lowering estimates)
• Show the price target math
• Your financial forecast; and/or
• Valuation multiple/method
• Research to support the out-of-consensus view mentioned above
• Quantify how much your forecast or valuation differs from consensus (how much upside is due to your out-of-consensus view)
• When and why will consensus adopt your view?
• What could go wrong?

* When quantifying the unique FaVeS™ element above, it’s often much better to show comparisons of new estimates vs. prior estimates or vs. consensus in a table format such as below:

• Use your firm’s slide template, if one exists. If not, create one that has the same header, footer, and font throughout
• Do not have more than five lines of text per slide
• The font size should be easily readable for everyone in the room (or for viewing online) — at least 14 point, and preferably larger, which shouldn’t be a problem if you’re following the “5 line max” rule directly above
• Let pictures and easy-to-read charts tell as much of the story as possible. Do this by breaking up the text with relevant images and exhibits. Places to find good stock photos include iStock , com , and Adobe Stock . With this said, avoid graphics that do not help convey or reinforce your message (e.g. background clipart, irrelevant images, etc.)
• Include video if it’s critical for conveying your point, but understand it adds technical complexity, which raises the odds of a technical glitch
• If others in your firm will likely find value in the slides, save the presentation on a company network
• Avoid the mistakes mentioned in “ Death by PowerPoint ” (if the link breaks, search the web for “Death by PowerPoint” by Alexei Kapterev)
• If portions of the presentation will likely be made again and it relies on market data (such as a sell-side marketing deck), set it up to automatically link to a market data feed. This can be a big time saver, but requires the slides be manually reviewed before each presentation to ensure the data updated correctly and is consistent with the text
• Rather than read slides verbatim, use them to accentuate or support the points where you provide greater elaboration or an anecdote
• Don’t use your slides as a lazy man’s speaker notes. Use PowerPoint’s “presenter” view or Keynote’s “presenter” display so you can see your notes while the audience sees your slides (search YouTube for videos that provide a brief tutorial on how to use)
• Practice, practice, practice so you’re not reading your notes verbatim, which tends to be slow and often lowers the confidence level you convey to your audience. The more important the presentation, the more you should practice
• Get to the meeting room at least 15 minutes early and ensure everything is working correctly (at least 20% of the time when I’m presenting, I discover something that needs to be adjusted in the room). Use a microphone if it’s available (nobody will complain if you use one but they may not understand you if you don’t)
• In general, speak at the maximum speed that will be understood by most of the participants (slow down if your audience is made up of individuals who do not speak your language as proficiently as you)
• Slow down to make important points, and speed up to convey enthusiasm
• Lower the tone of your voice to demonstrate confidence
• If in person, convey the right body language (research has shown that 65% to 93% of the message delivered can be nonverbal…which is why practice is so important)
• Be energetic
• Make good eye contact
• Maintain good posture
• Don’t cross your hands or legs
• Smile, if appropriate
• Stand up if presenting to more than five people

None of this is rocket science which is probably why so many analysts consider presenting skills as innate, something you either have or you don’t.  But based on my experience, working with thousands of analysts around the world, it’s clear that the best presentation skills can be learned, even by experienced analysts.

This Best Practices Bulletin™ targets #4. Motivate Others to Act , of GAMMA PI™, within our Pathway to Success Framework .

Let me know if this Best Practices Bulletin™ helps and how I can improve upon this best practice. If you’re interested in presenting your ideas more effectively, AnalystSolutions provides equity research training with a specialized workshop to help:  Communicate Unique Stock Calls Successfully So Others Take Action .

Improve you or your team’s stock picking and communication skills with our equity research analyst training tools, which includes workshops such as the one above, as well as our GAMMA PI™ assessment and one-on-one coaching .  Also, consider ordering the book that inspired the founding of AnalystSolutions and the Best Practices Bulletin: Best Practices for Equity Research Analysts .

Visit our new Resource Center to find more helpful articles, reference cards, and advice towards your growth as an Equity Research Analyst.

©AnalystSolutions LLP All rights reserved.  James J. Valentine, CFA  is author of  Best Practices for Equity Research Analysts , founder of  AnalystSolutions  and was a top-ranked equity research analyst for ten consecutive years

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Home > Finance > How Is Treasury Stock Shown On The Balance Sheet?

How Is Treasury Stock Shown On The Balance Sheet?

Published: December 27, 2023

Learn how treasury stock is presented on the balance sheet and its significance in finance.

• Balance Sheet

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Table of Contents

Introduction, definition of treasury stock, purpose of treasury stock, accounting treatment of treasury stock, presentation of treasury stock on the balance sheet, example of how treasury stock is shown on the balance sheet, importance of disclosing treasury stock.

Treasury stock is a term commonly used in finance and accounting that refers to shares of a company’s own stock that have been repurchased by the company. This stock is usually held by the company itself rather than being retired or canceled, and it is therefore considered as “outstanding” stock but not actively traded in the market. The treatment of treasury stock on the balance sheet is an important aspect of financial reporting, as it reflects the company’s financial position and provides insights into its capital structure.

The concept of treasury stock may seem counterintuitive at first, as companies typically issue shares of stock to raise capital from investors. However, there are various reasons why a company might decide to repurchase its own stock. It could be a strategic move to return excess cash to shareholders, to increase the company’s earnings per share, or to thwart a potential hostile takeover by reducing the number of shares available for trading.

In this article, we will explore the accounting treatment of treasury stock and how it is presented on the balance sheet. We will also discuss the importance of disclosing treasury stock information to investors and other stakeholders.

Treasury stock is a term used to describe shares of a company’s own stock that has been repurchased by the company. When a company buys back its own shares, those shares are no longer considered to be outstanding in the market. Instead, they are held by the company itself, which is why they are referred to as treasury stock.

Unlike shares that are retired or canceled, treasury stock remains part of the company’s total capital stock but is not available for trading or voting purposes. It is essentially considered “inactive” stock and is typically held by the company in its own treasury account.

It’s important to note that treasury stock is different from authorized, issued, and outstanding shares. Authorized shares are the maximum number of shares that a company is allowed to issue, while issued shares are the number of shares that have been actually issued by the company. Outstanding shares, on the other hand, are the issued shares that are currently held by investors in the market.

Treasury stock can be acquired in a number of ways, including open market purchases, direct repurchases from shareholders, or through stock buyback programs. The decision to repurchase shares of its own stock is typically made by a company’s management and board of directors, based on various factors such as the company’s financial position, strategic objectives, and market conditions.

The main purpose of acquiring treasury stock is to provide the company with more flexibility in managing its capital structure and utilizing its available cash. It can also be seen as a way to enhance shareholder value by reducing the number of shares outstanding, which may increase earnings per share and potentially boost the stock price.

The repurchase of a company’s own stock, known as treasury stock, serves various purposes and can be driven by strategic, financial, and regulatory considerations. Let’s explore some of the main purposes behind companies acquiring treasury stock:

• Capital Structure Management: By repurchasing its own stock, a company can adjust its capital structure and optimize its financial position. This can be done by reducing the number of shares outstanding, which may increase earnings per share and enhance shareholder value. It can also allow the company to redistribute its excess cash to shareholders or reissue the treasury stock for other purposes, such as employee stock option plans.
• Market Manipulation and Defensive Measures: Acquiring treasury stock can be a defensive tactic to prevent hostile takeovers or counteract the influence of activist investors. By reducing the number of shares available for trading, the company can make it more difficult for external parties to gain control or influence over the company’s decision-making processes.
• Undervaluation and Investment Opportunity: Companies may repurchase their stock when they believe it is undervalued in the market. By buying back shares at a lower price, the company can potentially generate long-term value for shareholders when the stock price eventually appreciates. This can also signal to investors that the management has confidence in the company’s future prospects.
• Tax Efficiency: Repurchasing treasury stock can be a tax-efficient way for companies to distribute excess cash to shareholders. Instead of paying dividends, which may be subject to higher tax rates, the company can utilize its cash to buy back stock and increase the value of the remaining shares.
• Employee Stock Incentives: Treasury stock can be used to support employee stock incentive plans such as stock options or restricted stock units. By issuing treasury stock to employees, the company can align their interests with those of the shareholders and provide them with a sense of ownership and participation in the company’s success.

It’s important to note that while treasury stock can have various benefits, there are also potential drawbacks and risks. Companies need to carefully evaluate their financial resources, market conditions, and regulatory requirements before engaging in treasury stock transactions to ensure they are acting in the best interests of their shareholders and maintaining transparency in their financial reporting.

The accounting treatment of treasury stock involves recording the repurchase of shares on the company’s balance sheet and making appropriate adjustments to the equity section of the financial statements. Here are the key aspects of the accounting treatment of treasury stock:

• Cost Method: The most commonly used method for accounting for treasury stock is the cost method. Under this method, the treasury stock is recorded at its acquisition cost, which is the price paid to repurchase the shares. The cost of the treasury stock is debited to the treasury stock account, a contra-equity account that reduces the shareholders’ equity on the balance sheet.
• Reduction in Shareholders’ Equity: The repurchase of treasury stock reduces the total shareholders’ equity of the company. This reduction is reflected on the balance sheet as a deduction from the company’s total common stock and additional paid-in capital. Treasury stock is reported as a negative amount in the equity section of the balance sheet to indicate that it is a reduction in shareholders’ equity.
• Treatment of Dividends and Voting Rights: Treasury stock does not have voting rights and is not entitled to receive dividends or participate in shareholder meetings. Therefore, companies do not include treasury stock when determining the total number of shares for voting or dividend calculations.
• Disclosure in Financial Statements: The accounting treatment of treasury stock requires clear disclosure in the company’s financial statements. This includes providing information on the number of shares repurchased, the cost of the treasury stock, and any changes in the treasury stock account. These details are typically disclosed in the notes to the financial statements to ensure transparency for investors and other stakeholders.

It’s important for companies to adhere to Generally Accepted Accounting Principles (GAAP) or International Financial Reporting Standards (IFRS) when accounting for treasury stock. Following the proper accounting treatment ensures accurate financial reporting and helps investors make informed decisions about the company’s financial health and performance.

It’s worth noting that the accounting treatment of treasury stock can vary depending on local regulatory requirements and specific company circumstances. Companies should consult with their accountants or financial advisors to ensure compliance with applicable accounting standards and regulations.

When it comes to presenting treasury stock on the balance sheet, it is important for companies to follow specific guidelines to accurately reflect their financial position. Here’s how treasury stock is typically presented on the balance sheet:

• Shareholders’ Equity Section: Treasury stock is reported as a negative amount within the shareholders’ equity section of the balance sheet. It is deducted from the common stock and additional paid-in capital accounts. This deduction reflects the reduction in shareholders’ equity due to the repurchase of shares.
• Separate Line Item: Treasury stock is commonly presented as a separate line item within the shareholders’ equity section. It is labeled as “Treasury Stock” or “Stock Repurchased” to clearly indicate that it represents shares that the company has bought back from the market.
• Carrying Value: The carrying value of treasury stock is typically stated as the cost of the shares repurchased. This is the amount at which the shares were originally bought back from the market or shareholders and is recorded as a negative number beneath the “Treasury Stock” line item.
• Net Equity Impact: The presentation of treasury stock on the balance sheet has a net impact on shareholders’ equity. The deduction of treasury stock from the common stock and additional paid-in capital accounts reduces the overall equity value, reflecting the decrease in outstanding shares due to the repurchase.
• Detailed Disclosure: Companies often provide additional disclosure in the footnotes to the financial statements regarding their treasury stock activities. This includes information about the number of shares repurchased, the average cost per share, and any changes in the treasury stock account balance over the reporting period.

By presenting treasury stock as a separate line item on the balance sheet, companies provide transparency and clarity to stakeholders regarding the repurchase of shares and its impact on the shareholders’ equity. This allows investors, creditors, and analysts to assess the company’s capital structure and make informed decisions about its financial health and performance.

It’s important for companies to adhere to applicable accounting standards, such as Generally Accepted Accounting Principles (GAAP) or International Financial Reporting Standards (IFRS), when presenting treasury stock on the balance sheet. This ensures consistency and comparability in financial reporting across different companies and industries.

To illustrate how treasury stock is presented on the balance sheet, let’s consider a hypothetical example:

Company XYZ repurchases 10,000 shares of its own common stock at a cost of $20 per share. The company’s common stock was originally issued at $30 per share, and it has additional paid-in capital of $200,000.

On the balance sheet, the presentation of treasury stock would look as follows:

• Common Stock: 1,000,000 shares x $30 = $30,000,000
• Additional Paid-in Capital: $200,000
• Treasury Stock: (10,000 shares x $20) = ($200,000)

In this example, the common stock and additional paid-in capital represent the initial equity raised by the company through the issuance of shares. The treasury stock is presented as a separate line item, indicating the shares repurchased by the company.

The value of the treasury stock is calculated by multiplying the number of repurchased shares (10,000) by the cost per share ($20), resulting in a negative value of ($200,000). This deduction from the shareholders’ equity section reflects the reduction in the overall equity due to the repurchase of shares.

It’s worth noting that the presentation of treasury stock on the balance sheet may vary depending on the specific accounting standards followed and the reporting requirements of the jurisdiction in question. However, the overall concept remains consistent: treasury stock is shown as a separate line item within the shareholders’ equity section, with a negative value representing the cost of the repurchased shares.

By clearly presenting treasury stock on the balance sheet, companies provide transparency to stakeholders regarding their capital structure and the impact of stock repurchases on shareholders’ equity. This information enables investors, creditors, and analysts to better assess the financial health and performance of the company.

Disclosing treasury stock information is of significant importance as it provides transparency and insights into a company’s capital structure and stock repurchase activities. Here are some reasons why disclosing treasury stock is essential:

• Accuracy of Financial Statements: In keeping with accounting principles and regulations, disclosing treasury stock ensures the accuracy and completeness of a company’s financial statements. By including treasury stock as a separate line item, stakeholders can clearly see the reduction in shareholders’ equity resulting from stock repurchases, allowing for more accurate analysis of the company’s financial health.
• Investor Decision-Making: Investors rely on accurate and comprehensive information to make informed investment decisions. When a company discloses treasury stock, it provides investors with a clear picture of the company’s capital structure and any potential impact on key financial metrics, such as earnings per share (EPS). This information helps investors assess the company’s performance and evaluate its long-term growth prospects.
• Protection of Shareholders’ Interests: Disclosing treasury stock is crucial for protecting the interests of shareholders. When a company repurchases its own stock, it may affect ownership rights, voting power, and entitlement to dividends. Transparent disclosure ensures that shareholders are aware of the company’s actions and can assess the potential impact of stock repurchases on their investment.
• Corporate Governance and Accountability: By disclosing treasury stock, a company demonstrates its commitment to transparency and accountability. This fosters trust among stakeholders, including shareholders, employees, lenders, and regulatory authorities. It also indicates the company’s adherence to sound corporate governance practices, which are highly valued in today’s business environment.
• Use in Financial Analysis: Disclosed treasury stock information can be utilized for financial analysis purposes. Analysts can examine the trends of stock repurchases over time and assess their impact on various financial ratios and metrics, such as return on equity (ROE) and price-earnings (P/E) ratio. This analysis helps in evaluating the efficiency and effectiveness of a company’s share repurchase strategy.

It is worth noting that the disclosure of treasury stock may be required by accounting standards, such as Generally Accepted Accounting Principles (GAAP) or International Financial Reporting Standards (IFRS). Companies should comply with these standards and provide comprehensive and accurate disclosure in their financial statements and related footnotes.

Overall, the disclosure of treasury stock is crucial for maintaining transparency, protecting shareholder interests, and facilitating informed decision-making by investors and other stakeholders. By providing clear and complete information, companies demonstrate their commitment to sound financial reporting practices and foster trust among the investing community.

Treasury stock plays a significant role in a company’s financial reporting and capital structure. Understanding the definition, purpose, accounting treatment, and presentation of treasury stock is essential for investors, analysts, and other stakeholders. By accurately disclosing treasury stock information, companies can provide transparency and insights into their stock repurchases, enabling stakeholders to make informed decisions.

Treasury stock is a term used to describe shares of a company’s own stock that have been repurchased by the company and are held by the company itself. The repurchase of treasury stock can serve various purposes, such as capital structure management, market manipulation, undervaluation opportunities, tax efficiency, and support for employee stock incentives.

In terms of accounting treatment, treasury stock is typically recorded at cost and deducted from the shareholders’ equity section of the balance sheet. It is presented as a separate line item, indicating the repurchased shares and their negative value. Disclosing treasury stock information ensures accurate financial reporting, helps investors assess the financial health of the company, and protects shareholders’ interests.

Disclosing treasury stock is important for the accuracy of financial statements, investor decision-making, protection of shareholders’ interests, corporate governance, and financial analysis. By providing transparency and comprehensive disclosure, companies demonstrate their commitment to accountability and promote trust among stakeholders.

In conclusion, treasury stock is a key aspect of a company’s financial landscape and understanding its treatment and presentation on the balance sheet is crucial for financial analysis and investor confidence. Companies should adhere to accounting standards, disclose treasury stock information accurately, and ensure transparency in their reporting practices to maintain credibility and facilitate informed decision-making.

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Treasury Stock on the Balance Sheet

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When you are thinking about buying stocks in a company, you will want to look at its balance sheet. When you are looking over a balance sheet , you will run across an entry under the shareholders' equity section called treasury stock. The dollar amount of treasury stock shown on the balance sheet refers to the cost of the shares a firm has issued and then taken back at a later time, either through a share repurchase program or other means.

These shares may be re-issued in the future, unlike retired shares that no longer have value. If shares no longer have value, a company removes them from its balance sheet.

Key Takeaways

• Treasury stock is the cost of shares a company has bought back.
• When a firm buys back stock, it may resell them later to raise cash, use them in an acquisition, or retire the shares.
• Opinions differ on whether treasury stock should be carried on the balance sheet at historical cost or at the current market value.

What Happens to Buyback Stock

Companies buy back their stock to boost their share price, among other reasons. When the firm buys back its shares, there are a few things that can be done with them. One choice is to sit on those buyback shares and later resell them to the public to raise cash. They can also be used in the purchase of other firms.

The company could also retire those shares and reduce the active share count for good. This would cause each active share to represent a greater ownership stake in the firm for investors. This means they would get a bigger cut of the dividends and profits as tallied by basic and diluted EPS .

The Good and Bad of Share Buybacks

Neither course of action shown above is better than the other. For the most part, either route can be good if the allocation of stock is managed well.

A real-world example of wise share buybacks is that of Teledyne Technologies. The founder and CEO, Henry Singleton, used treasury stock very well during his tenure. He increased the true value of the stock for long-term owners who stuck with the firm. Singleton bought back stock when the shares of the company were low cost. He also issued it liberally when he felt the stock was overvalued. These actions brought in cash to spend on useful assets and projects.

Treasury stock buyback schemes can sometimes destroy value. This might happen if a firm pays too much for its own shares or issues shares to pay for acquisitions when those shares are undervalued.

Though not entirely related to treasury stock, one of the most famous ill-timed examples to come out of corporate America in recent years was a 2010 deal in which the former Kraft Foods, spun out of Philip Morris, acquired Cadbury PLC. Kraft sold undervalued stock to pay for its overvalued $19.6 billion acquisition.

Real-World Examples

One of the largest examples you'll ever see of treasury stock on a balance sheet is Exxon Mobil Corp., one of the few major oil firms and the main offspring of John D. Rockefeller's Standard Oil empire.

At the end of 2018, Exxon had a stunning $225.553 billion in treasury stock on the books that it had bought back but not canceled.

Exxon Mobil has a policy of giving back surplus cash flow to owners through a mixture of dividends and share buybacks and keeping the stock with plans to use it again. Every decade or two, it buys a major energy firm. Exxon pays for the deal with stock. It dilutes stockholders' ownership percentages by reselling those shares, then using cash flow to buy that stock back, undoing the dilution.

It's a win-win for all parties involved. The owners of the acquisition target those who want to stay invested and don't have to pay capital gains tax from the merger. The owners of Exxon Mobil end up with the economic equivalent of an all-cash deal, and their ownership percentage gets restored. Exxon uses the cash flow from its older and newly gained earnings streams to rebuild its treasury stock position.

The Future of Treasury Stock

From time to time, certain talks take place in the finance industry as to whether or not it would be a good idea to change the rules for how firms carry treasury stock on the balance sheet. At present, treasury stock is carried at historical cost.

Some think it should reflect the current market value of the firm's shares. At least, in theory, the firm could sell the shares on the open market for that price or use them to buy other firms, converting them back into cash or useful assets. This thinking has yet to prevail.

Some states limit the amount of treasury stock a firm can carry as a cut in shareholders' equity at any given time. Limits are placed because it is a way of taking assets out of the business by the people who own shares, which in turn may threaten the legal rights of creditors. At the same time, some states don't allow firms to carry treasury stock on the balance sheet at all. Instead, they must retire shares. California, for instance, does not support treasury stocks, though some firms in the state do have them.

AccountingforManagement.org. " Treasury Stock - Cost Method ."

Corporate Finance Institute. " Share Repurchase ."

GuruFocus. " Henry Singleton: A Man Even Buffett Envied ."

SEC. " Offer by Kraft Foods Inc. for Cadbury PLC ."

Exxon Mobil. " Our History ."

Exxon Mobil. " 2018 Summary Annual Report ." Page 38.

SEC. " Form S4 Registration Statement ."

The National Law Review. " Four Decades After Being Demolished, Some California Corporations Continue to Refer to 'Treasury Stock .'"

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What Is Stock?

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Definition of a stock

A stock is a security that represents a fractional ownership in a company. When you buy a company's stock, you're purchasing a small piece of that company, called a share.

Investors purchase stocks in companies they think will go up in value. If that happens, the company's stock increases in value as well. The stock can then be sold for a profit.

When you own stock in a company, you are called a shareholder because you share in the company's profits.

How stocks work

Public companies sell their stock through a stock market exchange, like the Nasdaq or the New York Stock Exchange. (Here's more about the basics of the stock market .) For companies, issuing stock can be a way to raise money to pay off debt, launch new products, or expand their operations, according to the SEC.

For investors, investing in stocks is a way to grow your money and outpace inflation over time. When you're a shareholder, you can make money when stock prices rise, you may earn dividends when the company distributes earnings, and some shareholders can vote at shareholder meetings. [0] U.S. Securities and Exchange Commission . Stocks . Accessed May 9, 2022. View all sources

Investors can buy and sell shares through stockbrokers . The stock exchanges track the supply and demand of each company's stock, which directly affects the stock's price.

» Learn more: Read our detailed tutorial on how to buy stocks .

Stock prices fluctuate throughout the day, but investors who own stock hope that over time, the stock will increase in value. Not every company or stock does so, however: Companies can lose value or go out of business completely. When that happens, stock investors may lose all or part of their investment. That's why it's important for investors to diversify. A good rule of thumb is to spread money around, buying stock in many different companies rather than focusing on just one.

If you have a 401(k), you probably already own stock, though you might not realize it. Most employer-sponsored retirement plans invest in mutual funds , which can hold a large number of company stocks pooled together.

» Dive deeper: How to diversify your investment portfolio

How to stocks earn a return

Stocks carry more risk than some other investments, but also have the potential to reap higher rewards. Stock investors earn money in two main ways:

If the price of a stock goes up during the time you own it, and you sell it for more than you paid for it.

Through dividends. Dividends are regular payments to shareholders. Not all stocks pay dividends, but those that do typically do so on a quarterly basis.

» Interested in dividend income? View our list of high-dividend stocks .

Over the last century, the stock market has posted an average annual return of 10%. The word "average" is important here: Not only is that return an average for the market as a whole — rather than a specific individual stock — but in any given year, the market's return can be lower or higher than 10%.

You can buy individual stocks through an online broker. The process of opening a brokerage account is similar to opening a bank account. The commissions charged by online brokers for stock trades vary, so it's important to shop around. See NerdWallet's picks for the best brokers for stock investors for more details.

Key things to know about stocks

Common stocks vs. preferred stocks.

There are two main types of stocks: common and preferred. The main differences between common stock and preferred stock are dividends and voting rights. Most investors own common stock in a public company. Common stock may pay dividends, but dividends are not guaranteed, and the amount of the dividend is not fixed. Investors of common stock typically have voting rights that are proportional to their ownership level.

Preferred stocks typically pay fixed dividends, so owners can count on a set amount of income from the stock each year. Owners of preferred stock also stand at the front of the line when it comes to the company’s earnings: Excess cash distributed by dividend is paid to preferred shareholders first, and if the company goes bankrupt, preferred-stock owners receive any liquidation of assets before common-stock owners. Owners of preferred stock usually do not have voting rights. [0] U.S. Securities and Exchange Commission . Stocks . Accessed May 9, 2022. View all sources

Read our full explainer on the types of stocks for more detail.

Trading vs. investing

Traders buy and sell stocks to get a short-term profit. Investors buy and hold stocks, and usually do better over the long term. Investors typically own a diversified portfolio of many stocks, and hold on to them through good economic times and bad. (Here's more on the differences between stock trading and investing .)

Individual stocks vs. funds

Investing in individual stocks takes time. You should research each stock you purchase, which includes a deep dive into the bones of the company and its financials. Many investors opt to save time by investing in stocks through equity mutual funds, index funds and ETFs instead. These allow you to purchase many stocks in a single transaction, offering instant diversification and reducing the amount of legwork it takes to invest.

» Dive deeper : Should you invest in stocks or mutual funds?

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What is a stock?

How do stocks work, types of stock, how to make money investing in stocks.

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• A stock is an investment that represents a unit of ownership in a company.
• There are two ways shareholders can earn returns on their investments: capital gains and dividends.
• Investors can build diversified stock portfolios by investing in stock funds.

A stock is an investment in a company. But unlike private equity investments, which are typically reserved for accredited investors, thousands of stocks are available for anyone to buy and sell on public exchanges like a stock market. 

Let's take a closer look at what a stock is, how stock investing works, and the ways that stock investors can make money.

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A stock, also known as equity, is a security that represents a fractional share of ownership in a company. When you purchase a stock from a company, you become a shareholder, and the small piece you own is called a share. 

Investors buy and own stocks in hopes that the company will succeed. When the company does well, its stock owners share in those profits. 

Conversely, shareholders can also expect their returns to be diminished if the company underperforms or declines. And in the worst-case scenario, a stock owner's shares could become worthless if the company was to go bankrupt.

Companies can issue their stock shares either privately or publicly. While private shares are typically only available to accredited investors, accreditation isn't required to invest in stocks that are traded on public exchanges such as the New York Stock Exchange or Nasdaq.

Private companies "go public" to raise money for business initiatives such as launching new products or services expanding its reach. They do this through initial public offerings (IPOs), where companies are required to meet SEC financial transparency requirements and share price is typically decided by an investment bank. Once the IPO has been issued and the stock begins trading, supply and demand dynamics will move its price up or down.

How to buy and sell stocks

Investors can buy and sell public stocks by opening an account with a stock broker. There are now a large number of brokers who don't charge commissions for stock trades and allow clients to buy fractional shares of stocks.

Investors can instantly diversify their stock holdings by investing in stock funds ( ETFs or mutual funds), which allows you to spread your money across a variety of stocks. Some funds are actively managed while others track benchmark market indexes, such as the S&P 500 .

"Stock picking can be a time-consuming activity if done correctly. Therefore, I always advise [investors] to buy an index or ETF such as one on the S&P 500, like VOO , or on any other sector of interest," says Shanka Jayasinha, CIO of S&J Private Equity .

How do stocks offer returns?

There are two primary ways that shareholders can earn returns on their investments: capital gains and dividends.

Capital gains are the profits from when you sell a stock. This happens when you sell it for more than you paid for it.

Dividends are regular payments to shareholders. Each company can set its own dividend schedule but quarterly payouts are most common.

Dividends give investors a means of realizing income without having to sell any of their shares — even during years that the stock price declines. Because of this, dividend-paying stocks are often very attractive to investors who are in or near retirement.

Stock investing vs. stock trading

In contrast to buy-and-hold investors, active traders try to make a profit on short-term fluctuations in a stock's price. While investors may focus heavily on a company's fundamental and long-term prospects, traders tend to rely more on news events and technical analysis to inform their decisions.

If you have the time that it requires to research and manage trades, trading can offer faster returns than investing. However, investing is the way to go if you want to earn passive income on your stock holdings. And if you do decide to dabble in trading, it's important to think through your trade plan before taking any position and stick with it no matter what.

Stocks can be classified in a variety of ways. Below we break down a few of the major types and explain their differences.

Common vs. preferred stocks

There are two main types of stocks: common stocks and preferred stocks.

• Common stock: As the name suggests, this is the most common type of stock. Common stockholders typically receive quarterly dividends and voting rights. However, those dividends fluctuate and are not guaranteed. 
• Preferred stock:  Preferred stocks pay a higher, fixed dividend than common stock, but their share prices don't appreciate as much as common shares do. Preferred stockholders also get paid those dividends before common shareholders, even in the event of bankruptcy. 

"If you buy 100 shares of Coca Cola Company stock, you're most likely buying the common stock," says Robert Johnson , a professor of finance at Creighton University. "Common stock, at most companies, accounts for the vast majority of the shares outstanding."

Holders of common stock also "elect the board of directors and vote on corporate issues" explains Anthony Denier, CEO of the trading platform Webull . "The disadvantage is that in bankruptcy proceedings, common shareholders are last in line for the company's assets." 

Denier adds that preferred stock offers "stable dividends" and the yields are often "higher than the same company's common stock dividends." And he notes that if the company is running short on cash, "preferred shareholders receive their dividends before common shareholders." 

Class A vs. Class B shares

In some cases, companies may sell separate Class A and Class B shares. The major difference between the two is typically that Class B shares will have more voting rights. 

For example, Coke common stock shareholders receive one vote per share, while Class B shareholders receive 20 votes per share. Typically, companies create share classes in this way because they want the voting power to remain with a certain group.

Other stock categories and classifications

Let's say that you're an average retail investor who only has access to common stock. You can filter your stock search in a variety of ways such as by size, industry, style, or location. 

One option is to look at the company's market capitalization — or in other words, its size. Some investors may only want to focus on well-established, large-cap companies. Others may want to include small-cap and mid-cap companies which, while often more volatile, could also offer outsized returns.

Companies can also be grouped by industry. Tech, industrials, financials, and consumer staples are just a few industry sector examples. Investing in stocks from a variety of industries helps to improve your portfolio's diversity.

With style-driven investing, you look for stocks that fit in with a particular investing strategy such as growth, value, or dividend investing. And, finally, stocks can be classified by geography. For example, U.S investors may want to broaden their exposure to emerging markets by investing in foreign-company stocks.

What is a blue chip stock?

Large-cap stocks overlap with — but are not exactly the same as — another category of stocks, the blue chips. Large-cap stock strictly refers to the numbers — that market capitalization dollar value the company has. By contrast, blue-chip stocks belong to a more loosely defined group: There's no official or statistical definition. 

But generally, they come from mature companies that have demonstrated solid performance over a long period of time — sometimes more than 100 years. They are considered very low-risk and reliable. They often pay good dividends. So blue-chip companies usually also fall into the large-cap category. But not all large caps are blue-chips.

Blue chip stocks share some characteristics:

• Large market capitalization : Blue chips tend to be large, well-financed corporations. Their market capitalization — that is, the total market value of all their outstanding shares — is in the high billions, putting them in the category of large-capitalization (or large-cap) stocks. The least expensive of these large caps enjoy a value of at least $5 billion; most are north of $10 billion.
• Growth history : Blue-chip companies display years, sometimes decades, of sustained growth and ongoing prospects. Their share prices rarely jump dramatically, but they can show steady appreciation over time. 
• Stock index : Blue chips occupy positions in the major market indexes: the Dow Jones Industrial Average (DJIA), the  S&P 500 , the  Nasdaq 100 . A company is often seen to have "made it," blue-chip status-wise, if on one of these lists, which act as bellwethers for the stock market itself.
• Dividends : While not always a feature, many blue chips pay shareholders a good, steady dividend. As mature companies, blue chips focus less on growth than start-ups and other businesses that need to continually seed development. For blue-chips, the freed up cash flow allows companies to share profits with stock owners through dividend payments. As profit margins grow, the dividends often increase as well. 

What is treasury stock?

Treasury stock — also called treasury shares — is stock that a company has bought back from public investors. When a company does a stock buyback, it puts the repurchased shares back under its own control and reduces the supply of shares available in the market. That often boosts the price.

After the buyback, the company can cancel the treasury shares or keep them in reserve for potential reissuance or other uses at a later date. 

The amount of treasury stock a company has it can be found in its balance sheet. The balance sheet includes the company's assets, liabilities and shareholders' equity. Typically, the amount of treasury stock a company has is included in a line item at the bottom of the equity section, but really it can be included anywhere within the equity section with a debit balance. 

While treasury stock isn't something that typically has a direct impact on individual investors, knowing what it is and how it works is important. Companies can use it to protect themselves financially, plan for future mergers or acquisitions, fend off unwanted buyouts, reward employees, or plan for future capital raising needs, among other reasons. 

When investors are able to take advantage of compounding returns over many years, their profits can increase exponentially. That's why time in the market , rather than perfect timing , is likely to be most important to your success.

"Time is the greatest ally of the investor because of the 'magic' of compound interest ," Johnson says. 

With this in mind, Johnson recommends that investors "begin investing in a low-fee, diversified equity index fund and continue to invest consistently whether the market is up, down, or sideways." 

According to the Schwab Center for Financial Research , the market suffered intra-year setbacks of 10%+ in 10 of the past 20 years, demonstrating the relatively high short-term risk of stock investing. Yet, it finished in positive territory in all but three of those years.

The bottom line on stocks

A stock gives an investor a small ownership share of a company and the stock's returns will generally be based on the company's performance. Investing in stocks is a common way for investors to build wealth for themselves.

However, there are no guarantees. Whenever a public company fails, its stock investors are likely to suffer as well. But the more stocks you own, the lower your risk of taking a big portfolio hit as a result of one wrong stock pick. 

Thankfully, you don't need a huge account balance to build a diversified stock portfolio with your broker. Through the use of ETFs, mutual funds, or fractional shares, it's easy to invest in dozens or hundreds of stocks with minimal capital. 

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What Is Capital Stock?

Understanding capital stock, example of capital stock, treasury stock vs. preferred stock vs. common stock, formula and calculation of capital stock, types of capital stock, valuation of capital stock, advantages and disadvantages of capital stock.

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Capital Stock: Definition, Example, Preferred vs. Common Stock

Capital stock is the amount of common and preferred shares that a company is authorized to issue, according to its corporate charter. Capital stock can only be issued by the company and is the maximum number of shares that can ever be outstanding. The amount is listed on the balance sheet in the company's shareholders' equity section.

Key Takeaways

• Capital stock is the amount of common and preferred shares that a company is authorized to issue—recorded on the balance sheet under shareholders' equity.
• The amount of capital stock is the maximum amount of shares that a company can ever have outstanding.
• Issuing capital stock allows a company to raise money without incurring debt.
• The drawbacks of issuing capital stock are that the company relinquishes more control and dilutes the value of outstanding shares.

Investopedia / Dennis Madamba

Capital stock can be issued by a company to raise capital to grow its business. Issued shares can be bought by investors—who seek price appreciation and dividends—or exchanged for assets, such as equipment needed for operations.

The number of outstanding shares , which are shares issued to investors, is not necessarily equal to the number of available or authorized shares . Authorized shares are those that a company is legally able to issue—the capital stock, while outstanding shares are those that have actually been issued and remain outstanding to shareholders.

Issuing capital stock can allow a company to raise money without incurring a debt burden and the associated interest charges. The drawbacks are that the company would be relinquishing more of its equity and diluting the value of each outstanding share.

The amount that a company receives from issuing capital stock is considered to be capital contributions from investors and is reported as paid-in capital and additional paid-in capital in the stockholder's equity section of the balance sheet.

The common stock balance is calculated as the nominal or par value of the common stock multiplied by the number of common stock shares outstanding. The nominal value of a company's stock is an arbitrary value assigned for balance sheet purposes when the company is issuing shares—and is generally $1 or less. It has no relation to the market price.

If a company obtains authorization to raise $5 million and its stock has a par value of $1, it may issue and sell up to 5 million shares of stock. The difference between the par value and the sale price of the stock is logged under shareholders' equity as additional paid-in capital .

If the stock sells for $10, $5 million will be recorded as paid-in capital, while $45 million will be treated as additional paid-in capital.

Consider, Apple (AAPL), which has authorized 12.6 million shares with a $0.00001 par value. The 12.6 million is its capital stock. Meanwhile, as of June 27, 2020, Apple had issued 4,283,939 shares and had 4,443,236 outstanding.

Firms can issue some of the capital stock over time or buy back shares that are currently owned by shareholders. Previously outstanding shares that are bought back by the company are known as Treasury shares .

Authorized stock refers to the maximum number of shares a firm is allowed to issue based on the board of directors' approval. Those shares can be either common or preferred stock shares. A business can issue shares over time, so long as the total number of shares does not exceed the authorized amount. Authorizing a number of shares is an exercise that incurs legal costs, and authorizing a large number of shares that can be issued over time is a way to optimize this cost.

Preferred stock is listed first in the shareholders' equity section of the balance sheet, because its owners receive dividends before the owners of common stock, and have preference during liquidation. Its par value is different from the common stock, and sometimes represents the initial selling price per share, which is used to calculate its dividend payments.

Total par value equals the number of preferred stock shares outstanding times the par value per share. For example, if a company has 1 million shares of preferred stock at $25 par value per share, it reports a par value of $25 million.

Public companies must report the value of their capital stock on the shareholder's equity section of their quarterly balance sheet. The formula for valuing capital stock is:

CS = ( NSI ) × ( PVPS ) where: CS = Capital stock NSI = Number of shares issued PVPS = Par value per share \begin{aligned}&\text{CS}=(\text{NSI})\times(\text{PVPS})\\&\textbf{where:}\\&\text{CS}=\text{Capital stock}\\&\text{NSI}=\text{Number of shares issued}\\&\text{PVPS}=\text{Par value per share}\end{aligned} ​ CS = ( NSI ) × ( PVPS ) where: CS = Capital stock NSI = Number of shares issued PVPS = Par value per share ​

Note that different classes of stock may have different par values.

In addition to the classes of shares listed above, there are additional categories to describe shares according to their place in the market .

• Authorized shares represent the maximum amount of shares that a company is allowed to issue. This is normally determined in the company's charter, which may outline the procedures for authorizing additional shares.
• Issued shares represent the portion of authorized shares that the company has already sold to investors.
• Unissued shares are the portion of authorized shares that have not yet been issued. Note that the sum of issued and unissued shares should add up to the total number of authorized shares.
• Treasury shares are issued shares that the company holds in its own account, usually as the result of a buyback. These shares do not have voting rights or dividends.
• Outstanding shares are the number of shares still held by outside investors, especially after a buyback.

Capital stock is typically valued based on its par value, as well as the value of additional paid-in capital . This represents the excess over the par value that investors pay the company for their shares.

When a company sells shares in an initial public offering, the IPO price is normally well above the par value. This difference will be listed as additional paid-in capital. In addition, any secondary offerings or share buybacks will also affect the value of the capital stock.

Equity stock sales represent one of the most common ways for a company to raise capital. However, there are some disadvantages.

Cheaper Than Borrowing

Unlike taking loans or issuing bonds, a company is not required to repay capital investors at a set schedule. In addition, it is inexpensive for a company to issue new shares, which can be sold at a much higher price than the cost of issuing the securities.

Loss of Control

Capital stock represents ownership of the company's equity. If a company's founders sell the majority of its voting shares to outside investors, they risk losing the ability to control the company's future. Moreover, even if it only sells a small number of shares, securities laws will require the company to publish details of its financial health.

Dilution of Shares

When a company issues shares, it dilutes the value of existing shares in the market, potentially devaluing the equity held by older investors. In order to raise the value of outstanding shares, the company must either increase its market capitalization or issue a buyback.

Pros and Cons of Capital Stock

Allow companies to raise cheaply and easily.

Unlike loans or bonds, equity capital is interest-free and does not have a set repayment schedule.

Stock issuances can dilute the value of existing shares.

Company founders may lose control over the direction of their company.

Strict securities laws and transparency requirements make it

How Long Should You Hold Stock for Long-term Capital Gains?

If you hold stock or other assets for more than one year, it is taxed at the long-term capital gains rate, which is generally lower for all but the wealthiest investors. For short-term trades, you are taxed at your ordinary income level.

How Do You Avoid the Capital Gains Tax?

The capital gains tax is a tax on the profits from selling securities or other investments. Most investors can reduce their capital gains taxes by holding their investments for over one year. If you sell before one year, the gains are taxed at your ordinary income level, which is generally higher than the long-term capital gains tax rate. If you suffer a capital loss, you can use those losses to offset other gains .

What Is Capital Stock in Accounting?

In accounting and finance, capital stock represents the value of a company's shares that are held by outside investors. It is calculated by multiplying the par value of those shares by the number of shares outstanding.

Capital stock is another term for the ownership shares of a company's equity, represented as either preferred or common stock. Corporations typically sell their shares to investors in order to raise capital to fund their business operations. In exchange, investors receive partial ownership of the company, including dividends or voting power.

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Stock Keeping Unit (SKU): Definition, Best Practices, Example, and Benefits

Oct 29, 2020

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Stock Keeping Unit (SKU): SKUs - definition, best practices, example and benefits in inventory management

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Stock Keeping Unit (SKU): Definition, Best Practices, Example, and Benefits What is a SKU? The Stock Keeping Unit (SKU), most often being around 8 alpha-numeric digits, helps retail stores in keeping track of the items and their variants in the inventory. It lets a retailer know if he has the right products in stock when he needs them. It helps to present physical inventory items in a way that employees and computers can understand and track. In common parlance, it is also known as item code, item ID, item number, etc. SKUs are shortened versions of item descriptions, and hence they are more popular as item descriptions tend to have a longer length. SKUs help quicken the data entry, inventory movement, and management and Point of Sale.

Stock Keeping Unit (SKU): Definition, Best Practices, Example, and Benefits What is a SKU? SKU Numbers can be created manually by using inventory management software or through a point of sale (POS) software. They are printed on the label of the product along with the Universal Product Code (UPC) and other information about the product. Unlike UPCs, SKUs can be designed as per the specific needs of the retailer as they are not universal. SKUs are used by stores, e-commerce vendors, warehouses, supermarkets, product fulfilment centers, and businesses that deal with inventories. Ecommerce giant Amazon uses SKUs extensively, and it requires SKU to be part of the inventory file that a seller submits to it.

SKU Benefits SKUs help in quickly searching for a product 02 Helps to reduce errors in product warehousing and shipping SKUs help differentiate a product from another 01 03 04 Enables you to optimize your management of the product catalog

SKU Benefits Makes it easy to analyze customer behavior 06 Assists in inventory tracking, inventory management, carrying out various analysis related to inventory and sales Properly generated SKUs result in the raw material and packing material cost savings 05 07 08 SKUs help in sales forecasting and production planning

SKU Benefits SKUs help in providing a world-class in-store experience 10 Helps in analyzing current trends and remarketing the products on social media platforms Helps define a robust inventory management mechanism to avoid out-of-stock situations 09 11 12 SKUs help in knowing the exact location of the product

SKU Benefits Helps in optimizing the carrying costs of inventory as it makes it possible to identify slow-moving items 14 SKUs help in reducing the instances of inventory shrinkage Helps in improving the inventory turnover ratio and decrease deadstock 13 15 16 SKUs help in grouping the products and inventory management by ABC analysis method

Differences between SKU,UPC 01. SKUs are internal, whereas UPCs are external. 04. SKUs are alpha-numeric, and UPCs are numeric. 05. While the Global Standards Organisation (GS1) issues Universal Product Code, SKUs are determined by the retailer and accompany a barcode. 02. While SKUs vary in length between 8-12 characters, UPCs are always 12 digits. 03. Stock Keeping Unit identifies the product characteristics while, on the other hand, the Universal Product Code identifies manufacturers and items. On the other hand, Serial Numbers are used for tracking the ownership of the product and getting the warranty information. Barcode numbers on a group of products may differ for each product if one wants to provide them a unique identity, but SKU numbers remain the same to establish that they belong to a specific product group. Therefore, 1000 televisions sets of the same size and features will have the same SKU, whereas their barcode number and UPC number will differ.

SKU Management Best Practices Points to note while generating and maintaining SKUs • Try following a scheme starting with letters as it helps numbers stand-out in a spreadsheet and allows them to differ in the pool of data visually. • The initial letters of a SKU should be represented by the most important attribute of the product. • SKU Numbers should not begin with zero as some software might consider the value of zero as null and remove them.

SKU Management Best Practices Points to note while generating and maintaining SKUs • Never use numbers that look like letters – ‘0’ can look like ‘O’ and confuse the person handling inventory. Decide upon a convention and follow it in the naming of all the products. The classification you decide should be maintained with uniformity to ease understanding. The SKUs should not be aimed at being relevant with respect to the meaning, as it might end up forming very long numbers.

SKU Management Best Practices Points to note while generating and maintaining SKUs Try making SKUs short in length and of the same length so that you find more consistency in your database. As far as possible, avoid using seller SKUs as they are meant to be customized as per one’s own requirement. Never use special characters while coding the SKUs as they may confuse the computers.

SKU coding scheme SKUs can be made of details like 01 • Gender for which the product is intended 02 • Brand of the product 03 • Category of the product 04 • Size of the product 05 • Colour of the product 06 • Type of the products 07 • Name of the product 08 • Pricing 09 • Department code 2

Stock Keeping Unit (SKU) Example For example, an apparel store can design its SKUs considering item characteristics like item type, item size, item material, and item color as follows:

Why are SKU Numbers important? 01. Accurate Inventory Control At times, inventory can be a tricky thing to manage. While overstocking on a product can lead to cuts in profits due to increased carrying costs, on the other hand, running low on stock of products can lead to a loss in terms of potential business. Stock Keeping Units help to maintain inventory records up to date, which in turn enables you to maximize profits and achieve the business goal.

Why are SKU Numbers important? 02. Forecasting of Sales Having a proper database and record of physical products with the help of Stock Keeping Unit Numbers helps you in forecasting your sales better. You can easily see which products are selling well, or are selling fast or probably are selling slow. With all such data, it becomes easy to anticipate the requirements of stock and maintain it accordingly. Products can be strategically analyzed, and the needed steps can be taken to help foster sales.

Why are SKU Numbers important? 03 Facilitating Quick Shipment Once an order has been placed, timely shipment is an essential step that follows—for this, keeping track of what is stored where is very important. SKUs make this very easy. They help warehouses in finding the required product quickly. The exact product can be found by the warehouse keepers with accuracy. Products that have multiple variants can be sorted soon and placed in the warehouse on the basis of SKUs. Whenever a particular product is needed, the database can be checked, and the exact location of the product can be known. This saves the hassle of finding products in big warehouses and helps in shipping orders as quickly as possible.

Why are SKU Numbers important? 05. Earning Greater Profits 04. Better Customer Service The customer service teams and physical-store sales teams can quickly locate the products for which queries have been brought up by the customers. Repeating orders, finding a product, comparing product features are all made easy for customers by SKUs. In case of vendors, they can quickly present customers their needed products when SKUs are in place. Stock Keeping Unit Numbers can help you maximize your profits. They help you know the products that are selling the most. Strategic actions can be taken to maintain sales high. Proper positioning of the products on both offline and online platforms to increase customer focus can be done. Further, SKUs help in providing suggestions as to ‘related products’ while making sales. Product suggestions help increase sales and, thereby, profitability.

Role of SKUs in Retail

Role of SKUs in Supply Chain Management Ari retail software automates the task of SKU generation and saves time and cost. One can select the product characteristics that one wishes to have in the SKU coding scheme, and with a touch of a button, required SKUs and corresponding barcodes are generated. Check out https://youtu.be/ieDSHmIblrs and https://youtu.be/xh6cmiXT_iU to know the step-by-step procedures to generate SKUs using Ari Retail Point of Sale. SKUs are important for everyone, including suppliers, retailers, logistic companies, and customers. They help manage inventory efficiently and allows tracking and analyzing sales performance and provide better customer experience.

Frequently Asked Questions What is the difference between a SKU and a barcode? SKUs and Barcodes are similar. Just that the SKUs are interpretable by humans, whereas barcodes require a scanner. What is the difference between a SKU and a Serial Number? SKUs of a product group having the same characteristics will have the same SKU, whereas Serial Numbers are unique for each product.

Frequently Asked Questions How do I create a SKU? In order to create a SKU, Step 1: Identify product characteristics/attributes that you wish to track (Say, Colour, Size, Gender, Material, etc.)Step 2: Assign an alpha-numeric code to each characteristicStep 3: Link all such codes in a series, and you are done! What is the usefulness of SKUs in retail? Retail stores of all types, fashion retail, shoes, jewelry, pharmacy, sporting goods, gift shop, or eCommerce giants like Amazon, use SKUs for inventory management.

SKUs help identify stock on hand, in-transit, and sales performance of items. Retail stores using point of sale systems and eCommerce platforms can also recommend related products to customers using SKUs.Say, a customer wants to buy a medium-sized T-shirt with a round neck. When the item is punched on to a POS, the POS system can recommend that the same T-shirt is also available in white and blue colors. The same is true for eCommerce platforms.

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