What is qualitative analysis?
Qualitative analysis
Qualitative analysis uses subjective judgment based on non-quantifiable information such as managerial experience, industry cycles, the strength of research and development, and labor relations. Qualitative analysis contrasts with quantitative analysis, which focuses on the numbers found in reports, such as balances. However, these two methods will often be used together to study the company's activities and evaluate its potential as an investment opportunity.Fundamentals of Qualitative Analysis
The difference between qualitative and quantitative approaches is similar to the difference between a person and artificial intelligence. Quantitative analysis uses accurate input data such as profit margin, debt ratios, profit multiples, and the like. They can be included in a computerized model to get an accurate result, for example, fair value of shares or forecast growth in profits. Of course, at present, a person must write a program that will reduce these numbers, and this implies a sufficient degree of subjective judgment. However, after they are programmed, computers can perform quantitative analysis in fractions of a second, while even the most gifted and highly qualified people can take minutes or hours.Qualitative analysis, on the other hand, deals with intangible, inaccurate problems that relate to the social and empirical spheres, and not to the mathematical one. This approach depends on the kind of intelligence that machines do not have (at present), because things like positive brand associations, leadership reliability, customer satisfaction, competitive advantages and cultural advances are difficult, possibly impossible to reflect with numerical data.
Understanding People and Qualitative Analysis
Qualitative analysis can almost sound like “listening to one’s intuition,” and indeed many quality analysts claim that intuitive feelings have their place in this process. This does not mean, however, that this is not a strict approach. Indeed, it can consume much more time and energy than quantitative analysis.People are central to qualitative analysis. An investor can start by getting to know the management of the company, including his education and professional experience. One of the most important factors is their industry experience. More abstractly, do they have experience of hard work and prudent decision-making, or do they know better or are related to the right people? Their reputation is also key: are their colleagues and colleagues respected? Their relationships with business partners are also worth exploring, as they can have a direct impact on business.