What is ‘Qualitative Analysis’
Qualitative analysis is a securities analysis that uses subjective judgment based on unquantifiable information, such as management expertise, industry cycles, strength of research and development, and labor relations. Qualitative analysis contrasts with quantitative analysis, which focuses on numbers that can be found on reports such as balance sheets. The two techniques, however, will often be used together in order to examine a company’s operations and evaluate its potential as an investment opportunity.
Explaining ‘Qualitative Analysis’
The distinction between qualitative and quantitative approaches is similar to the distinction between human and artificial intelligence. Quantitative analysis uses exact inputs such as profit margins, debt ratios, earnings multiples and the like. These can be plugged into a computerized model to yield an exact result, such as the fair value of a stock or a forecast for earnings growth. Of course, for the time being, a human has to write the program that crunches these numbers, and that involves a fair bit of subjective judgment. Once they are programmed, though, computers can perform quantitative analysis in fractions of a second, while it might take even the most gifted and highly-trained humans minutes or hours.
Elements of Qualitative Analysis
Qualitative analysis can sound almost like “listening to your gut,” and indeed many qualitative analysts would argue that gut feelings have their place in the process. That does not mean, however, that it is not a rigorous approach. Indeed, it can consume much more time and energy than quantitative analysis.
Qualitative Analysis in Context
Customers are the only group more crucial to a company’s success than management and employees, since they are the source of its revenue. Ironically, if a company places customers’ interests before shareholders, it may be a better long-term investment. If feasible, it’s a good idea to try being a customer. Say you’re considering investing in an airline that has reined in costs, beat earnings estimates in three consecutive quarters and plans to buy back shares. When you try to actually use the airline, however, you find the website bug-ridden, the customer service reps cranky, the extra fees petty and your fellow passengers resentful. Now the financials appear to tell a less attractive story: a jaded incumbent squeezes more from its customers while giving less in return, throwing sops to investors until a better firm comes along to sweep them away.
Further Reading
- Caring for an individual with autism disorder: A qualitative analysis – www.tandfonline.com [PDF]
- A qualitative analysis of Singapore's medical tourism competitiveness – www.sciencedirect.com [PDF]
- Economic strain and suicide risk: a qualitative analysis – guilfordjournals.com [PDF]
- Legitimizing negative aspects in GRI-oriented sustainability reporting: A qualitative analysis of corporate disclosure strategies – link.springer.com [PDF]
- Adding value to randomization with qualitative analysis: the case of microcredit in rural Morocco – www.sciencedirect.com [PDF]
- Landowner perceptions of protecting and establishing riparian forests: A qualitative analysis – www.tandfonline.com [PDF]
- Barriers to employment as experienced by disabled people: a qualitative analysis in Calgary and Regina, Canada – www.tandfonline.com [PDF]
- Having the wrong kind of money. A qualitative analysis of new forms of financial, social and moral exclusion in consumerist Scandinavia – journals.sagepub.com [PDF]
- Self organizing maps in corporate finance: Quantitative and qualitative analysis of debt and leasing – www.sciencedirect.com [PDF]
