Investopedia

Reviewed by JeFreda R. Brown

Real estate investment trusts (REITs) own a basket of properties, ranging from malls to movie theaters, apartment buildings to office parks, and hotels to hospitals. A REIT may specialize in a certain real estate sector, or it may diversify into a variety of property types.

Investing in REITs is appealing for several reasons, especially for income-oriented investors. And while there are risks for the REIT market as a whole, over the long term, REITs have proven to be winners. 

Key Takeaways

• REITs provide investors with access to real estate without them having to own property. This brings liquidity, steady income, and growth potential.
• Selecting a successful REIT involves understanding economic trends and market conditions.
• Well-managed REITs stay ahead of trends and invest in high-demand locations, such as urban retail.

What to Look for in a REIT

For retail investors, REITs hold several advantages over investing in real estate itself. First of all, your investment is liquid. You can buy and sell shares of REITs, which trade like stocks on an exchange. Shares of REITs have low investment minimums, as well; investing directly in an actual property often requires a much more sizable commitment.

REITs generate income from the rents and leases of the properties they own. The majority (90%) of a REIT’s taxable income must be returned to shareholders in the form of dividends. As a result, investors often rely on REITs as providers of a steady cash flow, though the shares can also appreciate in value if the real estate holdings do.

When you’re ready to invest in a REIT, look for growth in earnings, which stems from higher revenues (higher occupancy rates and increasing rents), lower costs, and new business opportunities. It’s also imperative that you research the management team that oversees the REIT’s properties. A good management team will have the ability to upgrade the facilities and enhance the services of an underutilized building, increasing demand.

REIT Caveats

It’s important that you don’t think of REITs as an investment asset in themselves. You need to look at industry trends prior to determining what type of REIT is best for your portfolio.

For instance, mall traffic has been declining due to the increased popularity of online shopping and the decline of suburban neighborhoods (this is the first time since the 1920s that urban growth has outpaced suburban growth). So, REITs that are exposed strictly or heavily to malls will present more risk than those investing in other sorts of real estate.

Or take hotels. To invest in a REIT that focuses on them is to invest in the travel industry. While the industry may be doing well at a given moment, hotels have the potential to be hit by reduced business travel as companies look for ways to cut costs, and web conferencing becomes more common.

In terms of general economic trends, low inflation and lack of wage growth—such as the U.S. has experienced in the 2000s—often limit growth potential for REITs, since they put a damper on rent increases. Even so, REITs have been performing well in the face of these headwinds.

Note

Some REITs focus on niche properties, such as manufactured home communities and RV parks, which can perform well in economic downturns and inflationary periods.

A Far-Thinking REIT

The key is to be forward-looking. For example, millennials favor urban living over suburban living, a trend that has led to the aforementioned decline in suburban mall traffic and an increase in street retail (urban shopping strips anchored by a grocery or other major retailer). One REIT spotted the trend early and has set itself up accordingly.

Acadia Realty Trust (AKR) focuses on urban areas with high barriers to entry that are supply-constrained and highly populated. It also takes the approach of not falling in love with one particular retailer, because a popular retailer today might not be a popular retailer tomorrow. Instead, it invests in a street, block, or building, allowing it always to make adjustments so popular retailers are in place.

What Is a REIT?

A real estate investment trust (REIT) is a company that owns and operates income-generating properties, such as offices, hotels, apartment buildings, and shopping centers. Investors looking to gain exposure to the real estate market without having to buy property can buy shares of REITs like they would stock, and in return receive income, which is derived from the rental income of the properties or the profits of the REIT. REITs are required by law to pay out at least 90% of their income to shareholders.

What Are the Disadvantages of REITs?

REITs make investing in real estate fairly easy but do come with some disadvantages. When interest rates rise, their prices tend to drop because investors can get higher returns from safer investments, like bonds. Additionally, when rates rise, borrowing costs are higher, making it more costly for REITs to buy or develop properties, possibly reducing profits. REIT dividends are also taxed as ordinary income as opposed to capital gains, making them slightly tax-inefficient. Lastly, as an investor, you have no control over the properties or management decisions made by the REIT.

How Can I Invest in a REIT?

You can invest in REITs as you would invest in stocks. To invest in a REIT, open a brokerage account, such as Fidelity or E*Trade, fund your account, and select the publicly traded REIT you would like to purchase. You can also choose to invest in REIT mutual funds or exchange-traded funds (ETFs).

The Bottom Line

REITs allow for a hassle-free way of investing in property without needing to own the property. This brings benefits such as low-cost entry, liquidity, steady income, and the potential for growth.

To successfully benefit from REITs, investors need to understand industry trends, the economic climate, and the management quality of the REIT. Certain retail sectors, such as malls and hotels, face higher risks, while urban retail may be more stable. As with any investment, understanding the complexities is essential to making the right long-term bet.

As of the date this article was written, the author does not own AKR.

Reviewed by Samantha Silberstein

In the financial world, the Black-Scholes and the binomial option valuation models are two of the most important concepts in modern financial theory. Both are used to value an option, and each has its own advantages and disadvantages.

Some of the basic advantages of using the binomial model are:

• A multiple-period view
• Transparency
• Ability to incorporate probabilities

Let’s explore the advantages of using the binomial model instead of the Black-Scholes model and provide some basic steps to develop the model and explain how it is used. 

Key Takeaways

• The binomial model provides a multi-period view of the underlying asset price as well as the price of the option.
• The binomial model can also be used for projects or investments with a high degree of uncertainty, resource allocation decisions, and projects with multiple periods.
• While both the Black-Scholes model and the binomial model can be used to value options, the binomial model has a broader range of applications.

Multiple-Period View

The binomial model provides a multi-period view of the underlying asset price as well as the price of the option. In contrast to the Black-Scholes model, which provides a numerical result based on inputs, the binomial model allows for the calculation of the asset and the option for multiple periods along with the range of possible results for each period (see below).

The advantage of this multi-period view is that the user can visualize the change in asset price from period to period and evaluate the option based on decisions made at different points in time. For a U.S-based option, which can be exercised at any time before the expiration date, the binomial model can provide insight as to when exercising the option may be advisable and when it should be held for longer periods. By looking at the binomial tree of values, a trader can determine in advance when a decision on an exercise may occur. If the option has a positive value, there is the possibility of exercise whereas, if the option has a value less than zero, it should be held for longer periods.

Transparency

Closely related to the multi-period review is the ability of the binomial model to provide transparency into the underlying value of the asset and the option as time progresses. The Black-Scholes model has five inputs:

1. The risk-free rate
2. The exercise price
3. The current price of the asset
4. Time to maturity
5. The implied volatility of the asset price

When these data points are entered into a Black-Scholes model, the model calculates a value for the option, but the impacts of these factors are not revealed on a period-to-period basis. With the binomial model, a trader can see the change in the underlying asset price from period to period and the corresponding change in the option price. 

Incorporating Probabilities

The basic method of calculating the binomial options model is to use the same probability each period for success and failure until the option expires. However, a trader can incorporate different probabilities for each period based on new information obtained as time passes.

For example, there may be a 50/50 chance that the underlying asset price can increase or decrease by 30 percent in one period. For the second period, however, the probability that the underlying asset price will increase may grow to 70/30. For example, if an investor is evaluating an oil well, that investor is not sure what the value of that oil well is, but there is a 50/50 chance that the price will go up. If oil prices go up in Period 1 making the oil well more valuable and the market fundamentals now point to continued increases in oil prices, the probability of further appreciation in price may now be 70 percent. The binomial model allows for this flexibility; the Black-Scholes model does not.

Developing the Model

The simplest binomial model will have two expected returns whose probabilities add up to 100 percent. In our example, there are two possible outcomes for the oil well at each point in time. A more complex version could have three or more different outcomes, each of which is given a probability of occurrence.

To calculate the returns per period starting from time zero (now), we must make a determination of the value of the underlying asset one period from now. In this example, we assume the following:

• Price of underlying asset (P) : $500
• Call option exercise price (K) : $600
• Risk-free rate for the period: 1 percent
• Price change each period: 30 percent up or down

The price of the underlying asset is $500 and, in Period 1, it can either be worth $650 or $350. That would be the equivalent of a 30 percent increase or decrease in one period. Since the exercise price of the call options we are holding is $600, if the underlying asset ends up being less than $600, the value of the call option would be zero. On the other hand, if the underlying asset exceeds the exercise price of $600, the value of the call option would be the difference between the price of the underlying asset and the exercise price. The formula for this calculation is [max(P-K),0]. 

$begin{aligned} &max{left[left(P-Kright),0right]}\ \ &textbf{where:}\ &P=text{Price of underlying asset} \ &K=text{Call option exercise price} \ end{aligned}$​max[(P−K),0]where:P=Price of underlying assetK=Call option exercise price​

Assume there is a 50 percent chance of going up and a 50 percent chance of going down. Using the Period 1 values as an example, this is calculated as

$begin{aligned} &max{left[left($650-$600right),0right]}*0.5+max{left[left($ 350-$ 600right),0right]}*0.5\ & = $ 50 * 0.5 + $ 0 = $ 25\ end{aligned}$​max[($650−$600),0]∗0.5+max[($350−$600),0]∗0.5=$50∗0.5+$0=$25​

To get the current value of the call option we need to discount the $25 in Period 1 back to Period 0, which is

$$25/left(1+1$$25/(1+1%)=$24.75

You can now see that if the probabilities are altered, the expected value of the underlying asset will also change. If the probability should be changed, it can also be changed for each subsequent period and does not necessarily have to remain the same throughout.

The binomial model can be extended easily to multiple periods. Although the Black-Scholes model can calculate the result of an extended expiration date, the binomial model extends the decision points to multiple periods.

Uses for the Binomial Model

In addition to its use as a method for calculating the value of an option, the binomial model can also be used for projects or investments with a high degree of uncertainty, capital-budgeting and resource-allocation decisions, and projects with multiple periods or an embedded option to either continue or abandon the project at certain points in time.

One simple example is a project that entails drilling for oil. The uncertainty of this type of project is whether the land being drilled has any oil at all, the amount of oil that can be drilled, if the oil is found, and the price at which the oil can be sold once extracted. 

The binomial option model can assist in making decisions at each point of the oil drilling project. For example, assume we decide to drill, but the oil well will only be profitable if we find enough oil and the price of oil exceeds a certain amount. It will take one full period to determine how much oil we can extract as well as the price of oil at that point in time. After the first period (one year, for example), we can decide based on these two data points whether to continue to drill or abandon the project. These decisions can be continuously made until a point is reached where there is no value to drilling, at which time the well will be abandoned.

The Bottom Line

The binomial model gives a more detailed view by allowing multi-period views of the underlying asset price and the price of the option for multiple periods as well as the range of possible results for each period. While both the Black-Scholes model and the binomial model can be used to value options, the binomial model has a broader range of applications, is more intuitive, and is easier to use.

Fact checked by Suzanne Kvilhaug
Reviewed by Gordon Scott

You may have heard about iron condors, a popular option strategy used by professional money managers and individual investors. Let’s begin by discussing what an iron condor is, and then how you can benefit from learning how to trade them.

Key Takeaways

• An iron condor is an options strategy that involves four different contracts.
• An iron condor represents a ‘market neutral’ trade, which means there is no inherent bullish or bearish bias.
• This options strategy also allows you to own positions with limited risk and a high probability of success.

What Is an Iron Condor?

Some of the key features of the iron condor strategy include:

• An iron condor spread is constructed by selling one call spread and one put spread (same expiration day) on the same underlying instrument.
• All four options are typically out-of-the-money (although it is not a strict requirement).
• The call spread and put spread are of equal width. Thus, if the strike prices of the two call options are 10 points apart, then the two puts should also be 10 points apart. Note that it doesn’t matter how far apart the calls and puts are from each other.
• Most often, the underlying asset is one of the broad-based market indexes, such as SPX, NDX or RUT. But many investors choose to own iron condor positions on individual stocks or smaller indexes.
• When you sell the call and put spreads, you are buying the iron condor. The cash collected represents the maximum profit for the position.
• It represents a ‘market neutral’ trade, meaning there is no inherent bullish or bearish bias.

Iron Condor Positions, Step by Step

To illustrate the necessary components or steps in buying an iron condor, take the following two hypothetical examples:

To buy 10 XYZ Oct 85/95/110/120 iron condors:

• Sell 10 XYZ Oct 110 calls
• Buy 10 XYZ Oct 120 calls
• Sell 10 XYZ Oct 95 puts
• Buy 10 XYZ Oct 85 puts

To buy three ABCD Feb 700/720/820/840 iron condors:

• Sell three ABCD Feb 820 calls
• Buy three ABCD Feb 840 calls
• Sell three ABCD Feb 720 puts
• Buy three ABCD Feb 700 puts

How Do Iron Condors Make/Lose Money?

When you own an iron condor, it’s your hope that the underlying index or security remains in a relatively narrow trading range from the time you open the position until the options expire. When expiration arrives, if all options are out-of-the-money, they expire devoid of worth and you keep every penny (minus commissions) you collected when buying the iron condor. Don’t expect that ideal situation to occur every time, but it will happen.

Sometimes it’s preferable to sacrifice the last few nickels or dimes of potential profit and close the position before expiration arrives. This allows you to lock in a good profit and eliminate the risk of losses. The ability to manage risk is an essential skill for all traders, especially ones employing this strategy.

The markets are not always so accommodating, and the prices of underlying indexes or securities can be volatile. When that happens, the underlying asset (XYZ or ABCD in the previous examples) may undergo a significant price change. Because that’s not good for your position (or pocketbook), there are two important pieces of information you must understand:

• How much you can lose; and
• What you can do when the market misbehaves.

Maximum Loss Potential

When you sell 10-point spreads (as with XYZ), the worst-case scenario occurs when XYZ moves so far that both calls or puts are in the money (XYZ is above 120 or below 85) when expiration arrives. In that scenario, the spread is worth the maximum amount, or 100 times the difference between the strike prices. In this example, that’s 100 x $10 = $1,000.

Because you purchased 10 iron condors, the worst that can happen is that you are forced to pay $10,000 to cover (close) the position. If the stock continues to move further, it won’t affect you further. The fact that you own the 120 call (or 85 put) protects you from further losses because the spread can never be worth more than the difference between the strikes.

Loss Buffer in Premiums

There’s some better news: Remember, you collect a cash premium when buying the position, and that cushions losses. Assume you collect $250 for each iron condor. Subtract that $250 from the $1,000 maximum, and the result represents the most you can lose per iron condor. That’s $750 in this example.

Note: If you continue to hold the position until the options expire, you can only lose money on either the call spread or the put spread; they cannot both be in-the-money at the same time.

Depending on which options (and underlying assets) you choose to buy and sell, a few different circumstances can come about:

• The probability of loss can be reduced, but reward potential is also reduced (choose further out-of-the-money options).
• Reward potential can be increased, but the probability of earning that reward is reduced (choose options that are less far out-of-the-money).
• Finding options that fit your comfort zone may involve a bit of trial and error. Stick with indexes or sectors that you understand very well.

Introduction to Risk Management

The iron condor may be a limited-risk strategy, but that doesn’t mean you should do nothing and watch your money disappear when things don’t go your way. Although it’s important to your long-term success to understand how to manage risk when trading iron condors, a thorough discussion of risk management is beyond the scope of this article.

Just as you don’t always earn the maximum profit when the trade is profitable (because you close before expiration), you often lose less than the maximum when the position moves against you. There are several reasons that this might occur:

• You may decide to close early to prevent larger losses.
• XYZ may reverse direction, allowing you to earn the maximum profit.
• XYZ may not move all the way to 120. If XYZ’s price at expiration (settlement price) is 112, then the 110 call is in-the-money by two points and is worth only $200. When you buy back that option (the other three options expire without worth), you may still have earned a small profit – $50 in this scenario.

Practice Trading in a Paper-Trading Account

If this strategy sounds appealing, consider opening a paper-trading account with your broker, even if you are an experienced trader. The idea is to gain experience without placing any money at risk. Choose two or three different underlying assets, or choose a single one using different expiration months and strike prices. You’ll see how different iron condor positions perform as time passes and markets move.

The major objective of paper trading is to discover whether iron condors suit you and your trading style. It’s important to own positions within your comfort zone. When the risk and reward of a position allow you to be worry-free, that’s ideal. When your comfort zone is violated, it’s time to modify your portfolio to eliminate the positions that concern you.

The Bottom Line

Iron condors allow you to invest in the stock market with a neutral bias, something that many traders find quite comfortable. This options strategy also allows you to own positions with limited risk and a high probability of success.

Fact checked by Vikki Velasquez

The labor market is strong and competitive, with millions actively looking for work. But simply sending out your resume in this tough labor market may not help you stand out. Experts say getting yourself noticed by potential employers requires the development of these much-needed skills while you execute your search.

You should have both soft and hard skills to get noticed, including attention to detail, communication, and strong tech skills.

Key Takeaways

• Millions of people are actively seeking employment, making the job market strong and competitive.
• Employers are focusing on skills-based hiring over traditional qualifications.
• Focus on how you can bring attention to detail, communication skills, the ability to work independently and with a team, and adaptability to potential employers.
• Tech skills are becoming a priority for many employers.
• Know who you are and tailor your resume to the job postings that catch your eye.

Job Hunting in 2025

Job seekers faced many challenges finding work in 2024, due largely to a weak global economy and general labor shortages across the board. Experts suggest this trend is likely to continue in 2025 as employers are still struggling to find and hire professionals.

“Skilled workers remain in high demand as companies ramp up their efforts to secure top talent,” Noelle Stagias, senior director at KForce. Even with high demand, she suggested, the talent pool continues to dog employers.

The ratio of unemployed individuals to job openings was 1 to 0.9, according to the Society for Human Resource Management’s (SHRM’s) January 2025 labor market report. As many as 22% of unemployed professionals carry over their job search from 2024 into 2025, while 28% say they’re giving up because of the tough labor market climate.

With so many challenges, it’s important to set yourself apart to get noticed among other job seekers in a demanding job market. But how do you do that?

Note

If you’re looking for work, you’re not alone. According to the U.S. Bureau of Labor Statistics (BLS), 5.5 million people actively sought employment in the United States in January 2025.

Focus on These Skills

According to research, as many as 95% of hiring employers are prioritizing skills-based hiring over traditional qualifications. That’s why it’s important for anyone looking for a new position to focus on soft and hard skills.

“There are a few key skills that companies in every industry are looking for: attention to detail, strong communication, ability to work both independently and in a team, and being coachable and adaptable,” according to Stagias. “These skills have always been desirable, and they stand out even more in the hybrid and remote world. Companies want employees who are proactive and can hit the ground running.”

With the rise in artificial intelligence (AI) and technology, it’s also a good idea to bring strong tech skills to the table. Be sure you’re prepared with knowledge of a new program if a job posting calls for it. Not only does it show employers that you’re willing to learn new programs, but it also demonstrates that you’re willing to adapt.

Stagias, who focuses on recruiting in finance and accounting, said hiring managers look for candidates who “present themselves as well-rounded, committed, and adaptable” and prove they can grow with the company. Review your resume to make sure it fits with the jobs you’re applying to so you can speak about it “in detail and bring (your) experience to life in an interview.”

Important

Don’t forget to start your job search by knowing who you are as a professional. Understand what you bring to a potential employer, and look for positions that match your skill set.

10 Fastest-Growing Occupations and How Much They Earn

The U.S. Bureau of Labor Statistics tracks employment by sector, and by 2033, they predict these industries will have the highest employee demand. That’s contrasted with their current median annual wage. The jobs list is dominated by medical and technology fields.

1. Home health and personal care aides: $33,530 per year
2. Software developers: $132,270 per year
3. Medical and health services managers: $110,680 per year
4. Nurse practitioners: $126,260 per year
5. Computer and information systems managers: $169,510 per year
6. Substance abuse, behavioral disorder, and mental health counselors: $53,710 per year
7. Industrial machinery mechanics: $61,420 per year
8. Data scientists: $108,020 per year
9. Information security analysts: $120,360 per year
10. Personal financial advisors: $99,580 per year

The Bottom Line

Despite the high demand for skilled workers, companies aren’t hiring just anyone. If you don’t have the skills they’re looking for, your job search could be for naught. Focusing on your soft and hard skills and tailoring your resume to the positions you’re applying to can help you get noticed.

Although your skills will set you apart from the pack, Stagias also says employers still want to see the “tried and true measures”. Notably, you bring a strong job history and demonstrate how you’ve taken on responsibility over time.

Reviewed by Khadija Khartit

How Do BitTorrent Sites Make Money?

BitTorrent sites act as hubs where internet visitors download, share, and search for torrent files. A torrent file is the colloquial name for a peer-to-peer computer tracker to share large digital files, sometimes known as metadata files. BitTorrent sites primarily stream TV shows, movies, music, and other media data.

File hosts can make money through advertising revenue generated by the site. Others can make money by distributing malware. Most uploaders do not make any money.

Key Takeaways

• BitTorrent sites don’t generally make much money, but when they do, it is often in the form of ad revenue.
• Some malware uploaders who prey on the BitTorrent-seeking public may make significant income.
• BitTorrent sites tend to operate at a net loss, and many even need donations to stay in business.

Understanding How BitTorrent Sites Make Money

Not Much Money

Most BitTorrent sites do not make much money. Despite some claims by bombastic uploaders—Kim Dotcom famously showed expensive luxury cars and houses when boasting about torrent income—there is very little evidence that BitTorrent websites produce much income.

One study found that really good BitTorrent plugging can generate up to $200 per day for a website. The study further found that a very small percentage of users generated roughly 66% of content on such sites.

Types of Torrent Uploaders

The vast majority of files shared through BitTorrent sites are done out of communal altruism. For example, a listener who really enjoys a song may decide to share it as an experience for others. Other data may be uploaded to gauge public reaction. This type of file share still brings in advertising revenue to the website, but those individual contributors do not see any revenue.

Malware—the combination of viruses and adware or spam—is rampant on BitTorrent sites. Malware is primarily designed to promote piracy, identify theft, forced cryptocurrency mining, and illicit online material, such as pornography. These few individuals who distribute malware are sometimes well-compensated for their efforts, although that is not the purpose of a BitTorrent site.

A small subset of uploaders, similar to malware distributors, upload fake movies or CDs hoping to receive codec fees before getting caught. Again, these are a minority of uploaders.

Most of the moneymakers upload or establish websites and own the content that generates ad revenue. This is not normally a big income earner, but major websites with thousands of files can generate a lot of clicks. The income is based on click-through rates and site visits.

Advertising Revenue

The ultimate driver of BitTorrent income is advertising revenue, just as with the vast majority of for-profit web 2.0 sites. Another finding of the aforementioned study found that the advertising revenue for BitTorrents tends to be modest and often produces a net loss compared with hosting costs, which is why even some relatively major BitTorrent sites rely on donation drives for some portion of their revenue.

On the whole, torrent websites are generally not established to produce large amounts of money; rather, these are forums for peers to share information and media with an online community.

What Is the Most Popular BitTorrent Site?

The world’s most popular site that uses BitTorrent protocol is The Pirate Bay. The Pirate Bay is a file-sharing website that allows the distribution of very large files such as those containing movies and electronic games. It has been shut down several times, and its founders have been tried and convicted in Sweden on charges of promoting copyright infringement. However, the site is still active as of 2025.

How Much Is BitTorrent Worth?

BitTorrent’s market capitalization was estimated at around $1.18 billion in November 2024. While BitTorrent is traditionally considered a large player in the file-sharing market, its market cap also has to do with entering the cryptocurrency market.

When Did BitTorrent Branch into Cryptocurrency?

In 2018, the nonprofit Tron Foundation (now the Tron Decentralized Autonomous Organization) purchased BitTorrent. Ownership introduced a BitTorrent token cryptocurrency, BTT, in 2019 with the goal of expanding its protocol and incentivizing network participants. Tron also has its own native token, TRX.

The Bottom Line

Most BitTorrent sites make money through advertising revenue, while others profit by distributing malware, and some may even seek donations.

While the BitTorrent file-sharing protocol and software are usually free of malware and viruses, the files shared may not be. Always download from trustworthy sources, and use reliable antivirus software to scan downloaded files for potential threats. One final note of caution: Although BitTorrent itself is legal, using it to share copyrighted material is not.

Reviewed by Julius Mansa

Initial public offerings (IPOs) have become one of the most exciting events on Wall Street after the dot-com heyday created more paper millionaires than at any other time in history. Even though IPOs continue, many small investors are instead beginning to discover the vast opportunities available in delistings, which are the opposite type of transaction.

Key Takeaways

• Delistings offer vast opportunities for small investors.
• Companies voluntarily delist their stock from stock exchanges to privatize or move to over-the-counter (OTC) markets, or an exchange forces a company to delist itself because it fails to meet the exchange’s listing requirements.
• Reasons for delisting can include capital savings, a strategic move, or regulatory concerns.
• The best profit opportunities are found in companies that voluntarily delist to go private and cash out their shareholders.
• Investors can find delisting opportunities in filings on the Securities and Exchange Commission’s EDGAR database.

How Do Delistings Work?

Delistings occur when companies decide to delist their stock from stock exchanges in a move to privatize or simply move to the over-the-counter (OTC) markets.

This process occurs in one of two ways:

1. Voluntary Delistings: These occur when a company decides that it would like to purchase all of its shares or move to an OTC market while in full compliance with the exchanges. Usually, these are the types of delistings that investors should carefully watch.
2. Forced Delistings: These occur when a company is forced to delist itself from an exchange because it fails to meet the listing requirements mandated by the exchange. Typically, companies are notified 30 days before being delisted. Share prices may plunge as a result.

Advantages and Disadvantages of Voluntary Delisting

Companies may decide to deregister for a variety of reasons that can be either good or bad for shareholders.

A few of the most common reasons include:

• Capital Savings: The costs of being a publicly traded company are substantial and are occasionally difficult to justify with a low market capitalization, especially after Sarbanes-Oxley laws called for increased disclosures. As a result, deregistering can save a company millions and reward shareholders with a higher net income and earnings per share (EPS).
• Strategic Move: Company shares may be trading below intrinsic value, compelling the company to acquire its own shares as a strategic move. This typically results in shareholders being rewarded with substantial returns over the short term.
• Regulatory Concerns: Stock exchanges such as Nasdaq and the New York Stock Exchange (NYSE) have minimum requirements for companies to remain listed. If a company does not meet those requirements, it may be forced to delist itself. Causes for delisting may include failure to file timely financial reports, lower-than-required stock price, or insufficient market capitalization. In the end, companies can have a clear bottom-line incentive for delisting their stock from public exchanges—it’s not necessarily a bad thing!

How to Profit from Delistings

Delistings may make sense for companies, but how can the average investor take advantage of the situation? Well, the best opportunities are found in companies that voluntarily delist to go private and cash out their shareholders. Typically, this is because management is confident that the company is undervalued or could save substantial money by operating as a private enterprise. These efforts to cash out shareholders can often yield substantial returns to investors willing to do a little homework.

The key to this strategy is finding instances where tiny companies are trying to “cheat” the U.S. Securities and Exchange Commission (SEC). The SEC mandates that companies file paperwork if they choose to go private, but can avoid the extra efforts if they have fewer than 300 shareholders. Consequently, small companies often issue large reverse stock splits to reduce their number of shareholders and pay off the remaining shareholders holding less than that amount with cash compensation.

Fortunately, many institutional investors avoid these stocks due to the lack of liquidity and risk associated with these deals. However, small shareholders can often net a handsome profit from the strategy.

For example, let’s say company XYZ issued a 600:1 reverse stock split and then repurchased its shares at $5. Incredibly, shares traded at $4.24, well below the repurchase price after the stock split. This occurred despite the plan to privatize, which was being considered as a result of the stock’s lack of liquidity and the fact that it wasn’t covered heavily by any institutions. Not many individual investors would turn down nearly 18% gains in a matter of weeks!

Shareholders may also find other opportunities in obscure payoffs offered in privatization deals. Sometimes, companies will offer rights offerings, warrants, bonds, convertible securities, or preferred stock to entice shareholders to tender their shares in a move to privatize. Unfortunately, many of these offers are restricted to larger shareholders who are able to bargain more effectively.

Finding Opportunities

All significant corporate events must be recorded in filings with the SEC. As a result, investors can quickly find delisting opportunities in SEC filings that are publicly available through SEC’s EDGAR (Electronic Data Gathering, Analysis, and Retrieval) database.

Delistings are found in three types of SEC filings:

• 8-K Current Events: 8-K filings tell investors when and why the company is delisting and are often the first public notification of such intent. This includes the initial announcements of stock splits, which may be a precursor to privatization in smaller companies.
• Schedule 14A Proxy Statements: Proxy statements enable shareholders to vote on whether to go through with delisting (if it is voluntary). This usually occurs during a going-private transaction and may also be the first public notification of such intent.
• S-1/F-1 Registration Statements: These filings detail any new securities being issued as a result of delisting, which may include preferred stock, bonds, warrants, or securities in the private company being formed as a result.

What Is Delisting?

Delisting is the removal of a listed security from a stock exchange. The delisting of a security can be voluntary or involuntary and usually results when a company ceases operations, declares bankruptcy, merges, does not meet listing requirements, or seeks to become private.

Do the U.S. Stock Exchanges Publish Pending Delistings?

Yes. Nasdaq publishes a list of pending suspensions or delistings, and the New York Stock Exchange (NYSE) publishes a list of pending delistings.

How Can an S&P 500 Delisting Differ from Other Exchanges?

The S&P 500 Index is a market-capitalization-weighted index of 500 leading publicly traded companies in the United States. While companies can be voluntarily or involuntarily delisted for the same reasons discussed above, the index also adapts to changes in the market by adding companies that better reflect the economic landscape and removing those that no longer meet the criteria. This is to maintain the S&P 500’s status of representing the largest and most influential companies in the U.S. economy.

The Bottom Line

In the end, delistings can provide profitable investment opportunities or lose major money for shareholders. Everything depends on the motivations behind the privatization, the size of the company, and the terms of the offer.

Investors willing to put in the time and effort to find and research opportunities may uncover some gems for their portfolios that can perform extremely well in the short term.

Fact checked by Katharine Beer
Reviewed by Thomas Brock

As a financial advisor, it is your fiduciary responsibility to keep an eye on your client’s investments and be on the lookout for investments that might fail. Learn how to determine if a company is on the verge of bankruptcy or headed for some serious financial difficulties. It’s also a snap to learn how to analyze earnings as well.

Key Takeaways

• Financial specialists place a close eye on a company’s income and cash flows for signs of financial trouble.
• A company that consistently spends more than it brings in, or pays a large share of its income to service debt, could be in financial trouble.
• A sudden change in management or auditing firms could also hint at financial difficulty.

Dwindling Cash or Losses

Companies that lose money quarter after quarter burn through their cash fast. Be sure to review the company’s balance sheet and its cash flow statement to determine how the cash is being spent. Also, compare the current cash flows and cash holdings with the same period in the prior year to determine if there’s a trend.

If the company is burning through cash because of increases in investing activities, it might mean the company is investing in its future. However, if on the cash flow statement, the company is consuming cash in its operating activities as shown by a negative cash from operations, it might be a concern. Also, watch for large increases in cash because the company has sold long term assets which are reflected as cash inflows from investing activities. If they have done this, they have sold a revenue generating asset for short-term cash injections, but future cash flows may be weaker.

Companies should also have retained earnings, which is the money left over after earning a profit for a period. Effectively, RE is the savings account for corporations that accumulate profits over time to be used to reinvest back into the company, issue dividends, or buy back stock. If RE is not increasing or nonexistent, in the absence of dividends and buybacks, the company is either not profitable or barely getting by.

Important

The U.S. WARN Act requires companies of 100 or more employees to file a public notice 60 days before any mass layoff that affects 50 or more workers.

Interest Payments in Question

A company’s income statement will show what it pays to service its debt. Can the company keep losing money and still have enough left to make interest payments? Do the current revenue increases generate enough income to service the company’s debt?

There are metrics and ratios that measure a company’s ability to cover its debt obligations.

The interest coverage ratio, for instance, indicates how well a company’s earnings can cover its interest expenses. Analysts typically look for a ratio greater than 1.5x.

The current ratio (or cash ratio) is another calculation that aids in determining a company’s ability to pay short-term debt obligations. It is calculated by dividing current assets by current liabilities. A ratio higher than one indicates that a company will have a high chance of being able to pay off its debt, whereas, a ratio of less than one indicates that a company will not be able to pay off its debt. The acid-test ratio can also be used, the difference being its exclusion of inventory and prepaid accounts from current assets.

Switching Auditors

All public companies must have their books audited by an outside accounting firm. And while it is not uncommon for companies to switch firms from time to time, abrupt dismissal of an auditor or accounting firm for no apparent reason should raise red flags. It is usually a sign that there is a disagreement over how to book revenue or conflict with members of the management team. Neither is a good sign.

Also, review the auditor’s report which is included in the company’s annual report (the 10-K). Auditors are required to provide a report which concludes whether the information was presented fairly, and accurately describes the company’s financial status, at least to the best of their knowledge. However, if an auditor questions whether the company has the ability to continue “as a going concern” or notes some other discrepancy in accounting practices, specifically how it books revenue, that should also serve as a serious warning sign.

Dividend Cut

Companies that reduce, or eliminate, their dividend payments to shareholders are not necessarily on the verge of bankruptcy. However, when companies go through tough times, dividends are usually one of the first items to go. Management is not likely to cut a dividend unless it’s absolutely necessary since any cut is likely to send the company’s stock price down significantly. As a result, view any dividend cuts or the elimination of a dividend as a sign that difficult times lie ahead.

It’s important to consider other supporting evidence in determining whether a dividend cut is signaling dark times for a company. Namely, watch for declining or variable profitability, the dividend yield when compared to other companies in the same industry, and negative free cash flow. Wise investors are also cautious; make sure that your dividend is not at risk.

Important

Companies that trade on the stock market are required to publish information on their revenues, cash flows, and assets, and liabilities. These disclosures can help determine if the company is in financial trouble.

Top Management Defections

Typically, when things are heading seriously downhill for a company, senior members of the management team leave to take a job at a different company. In the meantime, current employees with less seniority will take the senior executives’ places. If management defections are steady, it’s seldom good news.

Big Insider Selling

The smart money investors, meaning institutional and executive holders of the stock, typically dump their shares ahead of a bankruptcy filing or really difficult times. Be on the lookout for insider selling.

However, during the normal course of business, some insiders may sell the stock from time to time. Essentially, you should pay attention to unusually large or frequent transactions, particularly those that occur in or around the time negative news is released.

Selling Flagship Products

If you were going through some tough times, you would probably tap your savings. And when you went through that, you would probably consider selling some of your assets to raise money. But you wouldn’t sell your personal mementos unless you had to. Well, the same logic applies to a company. So, if you see the company selling off a major division or product line in order to raise cash, watch out!

Cuts in Perks

Companies will seek to make deep cuts in their health benefits, pension plans, or other perks during difficult times. Deep and sudden cuts, particularly when they take place in conjunction with any of the other above-mentioned issues are a sign that trouble may lie ahead.

What Are the Warning Signs of a Corporate Bankruptcy?

There are several metrics you can watch to determine if a company may be headed towards bankruptcy. One of the most important is the current ratio—the value of the company’s assets compared to its liabilities. Debt levels and cash flows are also important signals, since a high debt level may make it difficult for the company to grow over time. If a company repeatedly fails to meet its debt or other financial obligations, it may be facing serious cash flow constraints.

What Are the Warning Signs of a Layoff?

Companies typically lay off workers when they expect a downturn or a cash crunch. They may also conduct layoffs to eliminate redundancies after an acquisition, or due to offshoring. At the level of individual workers, a sudden change in responsibilities or oversight could be a sign that management is preparing to lay off some employees. If a U.S. company has more than 100 employees, it must file a public notice 60 days before performing any mass layoff.

What Do You Do If You Get Laid Off?

The first thing to do after a layoff is to learn your rights. Check your employee handbook and contract (if you have one) to see if there are any required procedures for termination, including the payment of sick leave and time off. Your company may ask you to sign some paperwork—do not sign unless you have a clear understanding of your rights. Companies may sometimes ask for a non-disclosure agreement as an incentive for a severance payment, but they cannot require it, or withhold final payment for any reason. Finally, the last thing to do after a layoff is to file for unemployment.

The Bottom Line

It is not uncommon for companies to hit bumps in the road and have to tighten their belts. However, if a company is tightening that belt excessively, or if more than one of the above scenarios occurs, beware. Watch for these items to be in a news release or the annual prospectus.

Reviewed by JeFreda R. Brown

Investors have a love-hate relationship with stock ratings. On one hand, they are loved because they succinctly convey how an analyst feels about a stock. On the other hand, they are hated because they can often be a manipulative sales tool.

This article will look at the good, the bad, and the ugly sides of stock ratings.

Key Takeaways

• Stock ratings, such as buy or sell, are good because they offer a quick insight into a stock’s prospects.
• However, ratings are the perspective of one person or a group of people and do not factor in an individual’s risk tolerance.
• Ratings are valuable pieces of information for investors, but they must be used with care and in combination with other information.

The Good: Sound Bites Wanted

Today’s media, and investors, demand information in sound bites because our collective attention span is so short. Buy, sell, and hold ratings are effective because they quickly convey the bottom line to investors.

But the main reason why ratings are good is that they are the result of the reasoned and objective analysis of experienced professionals. It takes a lot of time and effort to analyze a company and to develop and maintain an earnings forecast. And, while different analysts may arrive at different conclusions, their ratings are efficient in summarizing their efforts. However, a rating is one person’s perspective, and it will not apply to every investor.

The Bad: One Size Does Not Fit All

While each rating succinctly conveys a recommendation, this rating is really a point on an investment spectrum. There are many other factors to consider, including the investor’s risk tolerance, time horizon, and objectives.

A stock might carry a certain risk, which may not fit the risk tolerance of the investor. Thus, a stock might be viewed differently by different investors.

The Stock Rating Spectrum

Ratings and perspectives change, too, and not necessarily at the same time or in the same direction. Now, let’s examine how things change by examining the history of AT&T Inc. (T) shares.

First, let’s examine how perspectives at one point in time matter. In the beginning (say, in the 1930s), AT&T was considered a widow-and-orphan stock, meaning it was a suitable investment for very risk-averse investors—the company was perceived as having little business risk because it had a product everybody needed (it was a monopoly), and it paid a dividend (income that was needed by the “widows to feed the orphans”). Consequently, AT&T stock was perceived as a safe investment, even if the risk of the overall market changed (due to depressions, recessions, or war).

At the same time, a more risk-tolerant investor would have viewed AT&T as a hold or sell because, compared to other more aggressive investments, it did not offer enough potential return. The more risk-tolerant investor wants rapid capital growth, not dividend income—risk-tolerant investors feel that the potential additional return justifies the added risk (of losing capital).

An older investor may agree that the riskier investment may yield a better return, but they do not want to make the aggressive investment (more risk-averse) because, as an older investor, they cannot afford the potential loss of capital.

Now, let’s look at how time changes everything. A company’s risk profile (specific risk) changes over time as the result of internal changes (e.g., management turnover, changing product lines, etc.), external changes (e.g., market risk caused by increased competition), or both.

AT&T’s specific risk changed while its breakup limited its product line to long-distance services—and while competition increased and regulations changed. And its specific risk changed even more dramatically during the dot-com boom in the 1990s: It became a tech stock and acquired a cable company. AT&T was no longer your father’s phone company, nor was it a widows-and-orphans stock. In fact, at this point, the tables turned. The conservative investor who would have bought AT&T in the 1940s probably considered it a sell in the late 1990s. And the more risk-tolerant investor who would not have bought AT&T in the 1940s most likely rated the stock a buy in the 1990s.

It is also important to understand how individual risk preferences change over time and how this change is reflected in their portfolios. As investors age, their risk tolerance changes. Young investors (in their 20s) can invest in riskier stocks because they have more time to make up for any losses in their portfolio and still have many years of future employment (and because the young tend to be more adventurous). This is called the life cycle theory of investing. It also explains why the older investor, despite agreeing that the riskier investment may offer a better return, cannot afford to risk their savings.

In 1989, for example, people in their mid-30s invested in startups like AOL because these companies were the “new” new thing. And if the bets failed, these investors still had many (about 30) years of employment ahead of them to generate income from salary and other investments. Now, almost 20 years later, those same investors cannot afford to place the same “bets” they placed when they were younger. They are nearer to the end of their working years (10 years from retirement) and thus have less time to make up for any bad investments.

The Ugly: A Substitute for Thinking

While the dilemma surrounding Wall Street ratings has been around since the first trade under the buttonwood tree, things have turned ugly with the revelation that some ratings do not reflect the true feelings of analysts. Investors are always shocked to find such illicit happenings could be occurring on Wall Street. But ratings, like stock prices, can be manipulated by unscrupulous people, and have been for a long time. The only difference is that this time, it happened to us.

But just because a few analysts have been dishonest does not mean that all analysts are. Their assumptions may turn out to be wrong, but this does not mean that they did not do their best to provide investors with thorough and independent analysis.

Investors must remember two things. First, most analysts do their best to find good investments, so ratings are, for the most part, useful. Second, legitimate ratings are valuable pieces of information that investors should consider, but they should not be the only tool in the investment decision-making process.

What Are Stock Ratings?

A stock rating is an assessment tool assigned by an analyst or rating agency to a stock. The rating assigned indicates the stock’s level of investment opportunity.

The rating system can also be used for bonds.

What Is an Investment Analyst?

An investment analyst is a financial professional who has expertise in evaluating financial and investment information, typically to make buy, sell, and hold recommendations for securities. Brokerage firms, investment advisors, and mutual fund companies hire investment analysts to prepare investment research for multiple purposes.

What Are Analysts’ Buy, Sell, and Hold Ratings?

• A buy rating is a recommendation to purchase a specific security, indicating they believe it is undervalued or has significant growth potential. The rating is also known as “strong buy” and “on the recommended list.”
• A sell rating is a recommendation to sell a security or to liquidate an asset, indicating they believe it is overvalued and likely to decline in price. The rating is also known as “strong sell.”
• A hold rating is a recommendation to neither buy nor sell a security, indicating they believe it is expected to perform with the market or at the same pace as comparable companies.

The Bottom Line

A rating is one person’s view based upon their perspective, risk tolerance, and current view of the market. This perspective may not be the same as yours.

The bottom line is that ratings are valuable pieces of information for investors, but they must be used with care and in combination with other information and analysis in order to make good investment decisions.

Reviewed by Eric Estevez

Accounts receivable turnover and inventory turnover are two important ratios used by analysts to measure how efficiently a firm is paying its bills, collecting cash from customers, and turning inventory into sales. These two ratios appear in the current assets category of a business’s balance sheet.

Key Takeaways

• Accounts receivable turnover indicates how effective a company is at collecting on debts owed to it.
• The inventory turnover ratio indicates how well a company turns inventory into sales.
• These ratios vary by industry; some require higher or lower levels to sustain operations.
• These ratios should be compared with industry averages, similar businesses, and periods of time to be useful to investors.

Accounts Receivable Turnover

Accounts receivable turnover, or A/R turnover, is calculated by dividing a firm’s sales by its accounts receivable. It is a measure of how efficiently a company can collect on the credit it extends to customers. A firm that is very good at collecting on its credit will have a higher accounts receivable turnover ratio. It is also important to compare a company’s ratio with its industry peers to gauge whether its ratio is on par.

Inventory Turnover

Inventory turnover measures how efficiently a company turns its inventory into sales. It is calculated by taking the cost of goods sold (COGS) and dividing it by average inventory. Sometimes, sales are used instead of COGS. Again, a higher number is better as it indicates that a company is quite efficient at selling off its inventory more often rather than storing it for longer periods because its products are not selling.

Analyzing inventory turnover helps an investor decide if a company is effectively managing its inventory.

Why Turnover Metrics Are Important

Investors researching businesses that extend credit or that have physical inventory will benefit from analyzing their accounts receivable and inventory turnover ratios. These turnover ratios should be compared with a company’s previous periods because they will not indicate much on their own.

Also, industry averages should be noted, as well as those of competitors and similar businesses, to gauge whether a business is doing better, is on par with, or is doing worse than others.

Accounts Receivable

Accounts receivable turnover is important when companies extend credit to clients for a purchase (note that clients can be other businesses). There are very few industries that operate only on cash; most companies have to deal with credit as well. However, certain businesses may heavily favor cash, such as smaller restaurants or retailers. Large retailers that sell consumables may have lower levels of receivables because many customers pay in cash, debit cards, or credit cards.

Accounts receivable turnover becomes particularly important in industries where credit is extended for a long period of time. This is because collecting outstanding credit can become difficult or take longer than expected, which is a concern for investors. A business that cannot collect on debts owed will face hardships.

One industry in which noting accounts receivable turnover is important is financial services. For instance, CIT Commercial Services (a First Citizens Bank subsidiary) extends credit to businesses and operates a unit that specializes in factoring. Factoring is a financial transaction where one business sells its accounts receivable to another, often at a discount, allowing those businesses to collect on their receivables. Selling accounts receivables, which are, after all, a current asset, can be considered a way to receive short-term financing. In some cases, it can help keep a struggling company in business—investors should note that this is also a ratio improvement tactic.

Inventory Turnover

A firm that doesn’t hold physical inventory benefits little from an analysis. An example of a company with little to no inventory is the travel firm Priceline. Priceline sells flights, hotels, and related travel services without holding any physical inventory itself. Instead, it collects commissions to facilitate travel service sales.

Inventory turnover measures how quickly a firm sells and replaces its inventory over a specific period. Retailers typically have a high volume of inventory turnover.

Supply chain management consists of analyzing and improving the flow of inventory throughout a firm’s working capital system. This supply chain can be analyzed by looking at inventory in different forms, including raw materials, work in progress, and inventory ready for sale.

Understanding inventory and how quickly it is turned into sales is especially important in the manufacturing industry. Auto components, automobile, building product manufacturers, and machinery and metals companies should all turn inventory over at a high rate.

What Is the Relationship Between Accounts Receivable and Inventory?

Inventory and accounts receivable are current assets on a company’s balance sheet. Accounts receivable list credit issued by a seller, and inventory is what is sold. If a customer buys inventory using credit issued by the seller, the seller would reduce its inventory account and increase its accounts receivable.

What Is a Good Accounts Receivable Ratio?

It depends on the industry, but a good ratio is generally on par with or better than industry averages.

What Is Inventory Receivable Turnover Ratio?

There is no inventory receivable turnover ratio, but there is an inventory turnover ratio that indicates how often a company sells and replenishes its inventory.

The Bottom Line

Accounts receivable turnover and inventory turnover are widely used measures for analyzing how efficiently a business manages its current assets. Investors interested in companies that hold inventory, like those in the consumer packaged goods sectors, should place significance on these turnover ratios.

Paid family leave provides workers with income when they’re unable to work due to the birth of a child, among other reasons. It goes hand-in-hand with paid medical leave. The programs offer wage replacement in cases of serious illness or taking care of a loved one who’s suffering from a serious illness as well.

The program is set to expire next year, and the IRS issued guidance for some 2025 transitional changes on January 15. Here’s what you need to know.

Key Takeaways

• The Paid Family and Medical Leave (PFML) Act expires on January 1, 2026, and the IRS has made some changes to accommodate the transition.
• The PFML Act allows employers to claim certain tax breaks when they pay qualified workers who are out on leave.
• Eligible employees can receive up to 12 weeks of paid family leave plus 12 weeks of paid medical leave during the year in which they apply.
• The payments you receive in 2025 will not be subject to withholding.

The programs are provided by states, not by the federal government. Internal Revenue Code (IRC) Section 45S, the Paid Family and Medical Leave (PFML) Act, provides the terms and rules for federal tax treatment of these payments. The Act was initiated on December 31, 2017 and is set to expire on January 1, 2026. Only about one in four (27%) of private sector workers had access to these programs as of May 2023.

The U.S. is the only one of 37 Organisation for Economic Cooperation and Development (OECD) member countries that doesn’t provide a program at the national level. The Internal Revenue Service (IRS) offers employers a tax credit for benefits and contributions made, however.

Changes in 2025

The IRS has indicated that its statement on January 15, 2025, was intended to provide “transition relief” as the PFML Act winds down to its January 1, 2026 expiration. According to the IRS, this relief “is intended to provide States and employers time to configure their reporting and other systems and to facilitate an orderly transition to compliance with those rules.”

The statement applies mostly to tax and reporting requirements for employers, but this provision is important if you’re an employee: “…a state or an employer is not required to withhold and pay associated taxes.” The payments you receive in 2025 should therefore not be subject to withholding. 

The 2025 standard contribution rate is 1% of the employee’s weekly wages. The weekly benefit amount is 80% of their average weekly wages. 

How Paid Family Leave Works

The PFML Act allows employers to claim family leave payments made to employees as an excise tax if the leave program is mandatory and required by their state. Employers can also claim a tax credit equal to a percentage of wages paid to an employee while they’re out on family leave.

Benefits received and employer contributions are considered taxable income that’s been paid to you if you’re an employee so you have to claim them on your tax return. You can deduct your contributions made to the program if you itemize your deductions on your tax return, however. Employer and employee contributions combined must be equal to a standard contribution rate that’s set by the PFML Act annually. It’s a percentage of the employee’s weekly pay.

Eligible employees can receive up to 12 weeks of paid family leave plus 12 weeks of paid medical leave during the year in which they apply. The yearly deadline begins with the application date. Employers must have a written policy in place that provides for at least two weeks of paid family and medical leave and the pay can’t be less than 50% of what they would have earned if they’d been working.

What’s Covered Under Family Leave?

Childbirth is covered under family care along with time off to care for the baby. Adoption and taking in a foster child are covered as well.

Medical leave is covered by the PFML Act. It includes leave for suffering a serious health condition and leave to care for a spouse, parent, or child who is suffering. Deployment-related leave from military service is also covered. 

Important

“Serious” is defined as a condition that requires hospitalization or ongoing treatment by a health care provider.

What This Means for You and Your Baby

You can’t claim both family leave benefits and medical leave benefits concurrently. You’re limited to one or the other if you suffer childbirth complications and must also care for your new baby. You must claim one or the other but you can claim one 12-week period after the first 12-week period has ended.

You must also have worked for your employer for one year or longer to qualify.

Additional or varying requirements and provisions may apply if your state of residence is one of the 13 that have passed family and medical leave legislation as of 2025. New York’s weekly wage cap is 67% of pay as of 2025 compared to 80% as provided for under the PFML Act and employees fully fund it.

The 13 states with family and medical leave policies are:

• California
• Colorado
• Connecticut
• Delaware
• Maine
• Massachusetts
• Maryland
• Minnesota
• New Jersey
• New York
• Oregon
• Rhode Island
• Washington

The District of Columbia has also passed family and medical leave legislation.

The Bottom Line

Having a baby or adding a child to your family is a special time. But it can also bring a major disruption to your finances. If you live in one of the 13 states that provide paid family and medical leave, though, the IRS may have your back in 2025.