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Qualitative Analysis

A research tool for analyzing an organization's overall value based on non-quantifiable indicators

What is Qualitative Analysis?

Qualitative analysis is a research tool used in businesses in order to analyze an organization’s overall value based on non-quantifiable indicators. The non-quantifiable indicators can be information on items within an organization, such as their industry cycle, management expertise, responsiveness to inquiries, strength of business functions, labor relations, or even their visibility within media.

Qualitative analysis differs from quantitative analysis in terms of measurement. The former measures non-numeric information such as the examples used above, while the latter measures numerical data such as numbers on an income statement.

In most cases, both qualitative and quantitative analysis will be used together in order to extensively examine an organization’s trajectory and potential, both of which are incredibly important indicators used to determine investment opportunities.

 

Qualitative Aspects

Qualitative data comprises specific aspects that differ from other forms of data. For example, qualitative data is used to characterize objects or observations. Such observations include data that use your senses, such as sight, touch, and hearing.

Qualitative data does not refer to aspects that can be measured or numbered. For example, the numbers on a tax return or a balance sheet are not considered qualitative.

Qualitative observations and data can be incredibly helpful to businesses and investors due to the implications they can make. For example, if an organization were to determine that employee satisfaction is a crucial indicator that impacts productivity, it would improve the business tenfold.

 

Qualitative Analysis in Finance

Qualitative analysis is used in the financial industry to measure a company’s performance, help organizations make crucial decisions, and assist investors on whether or not to invest.

The most common use within finance, helping an investor make big decisions, is started by getting to know the management system extensively. Research analysts and investors do it by examining several qualitative variables, such as employee satisfaction, customer satisfaction, quality assurance, market recognition, and other precise aspects such as customer servicing and returns.

For the most part, examining the qualitative variables can be incredibly hard due to the inaccessibility of information. Many investors rely on news reports and company filings in order to gain a sense of the organization’s philosophy and how they serve their clients. In particular, investors analyze the management discussion and analysis (MD&A) section of an organization’s 10-k report, which is legally required to be published to shareholders.

 

Qualitative Business Analysis

Qualitative analysis is a highly prominent research tool used in business due to the vast implications that can be made on the statistical data. Researchers measure qualitative variables within an organization to examine a wide array of indicators, such as trajectory, proficiency, and satisfaction, all of which help investors decide on the company’s overall investment potential.

As for actual research, qualitative variables are much more complex to examine due to their non-numeric nature. To solve this, we attach numeric values to the qualitative data.

For example, let’s say ABC Company would like to analyze the satisfaction of their customers for their products. Measuring satisfaction is not numeric, but if we attribute numbers to each level of satisfaction, we can successfully examine the variable.

ABC Company would then ask their consumers to rate their satisfaction on a scale of five, which they would then be able to put into a statistical software. It would like something like the one below:

 

Qualitative Analysis

 

Qualitative Financial Analysis

Qualitative financial analysis is a research method in business that uses mathematics and statistical software in order to determine the value of specific financial items in a company.

From a base level, qualitative financial analysis is highly subjective. Investment analysts look for a variety of different factors in order to determine overall value.

The factors can include but are not limited to industry trends, management effectiveness, strength of a product line or brand, and consumer opinion. They are used in qualitative financial analysis to help an investor or business form an opinion about a company’s value and its stock.

 

Uses of Qualitative Analysis

Listed below are the many uses of qualitative analysis:

  • Develop extensive consumer profiles
  • Analyze business information that is not commonly examined
  • Determine the impact of customer and employee satisfaction
  • Better understand the trajectory of a business
  • Help investors make more lucrative decisions
  • Learn the importance of surveys and focus groups
  • Determine if there is a market for your company’s products and services
  • Determine the needs of the target market and audience
  • More effectively understand management systems and how it impacts operations
  • Gain a competitive advantage over other organizations and investors

 

More Resources

Thank you for reading CFI’s guide to Qualitative Analysis. To keep learning and advance your career, the following resources will be helpful:

  • Competitive Advantage
  • Focus Group
  • Products and Services
  • Types of SEC Filings
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