Qualitative Analysis Definition
Define Qualitative Analysis In Simple Terms
Qualitative analysis uses unquantifiable and subjective information, such as company culture, reputation, and employee and customer satisfaction, to evaluate the performance of a company.
Qualitative analysis is by nature abstract and inexact, and must be tempered by the analyst’s own best judgement.
As such, in order to get a more complete picture, qualitative analysis is often paired with additional quantitative analysis, which is the analysis of numerical and measurable values, such as the return on investment (ROI) or earnings per share (EPS).
What is Qualitative Analysis In Finance?
An investor looking to do a qualitative analysis of a company may start by getting to know the management.
For example, it would be important to note whether they got their position through hard work or through a connection.
The investor may then look at the company’s employees.
Are they passionate about their work?
Do they represent the best of their field?
Or are they being held back by micromanagement?
Lastly, the investor may look at customer satisfaction.
Are they happy with the service they receive?
Do customers tend to come back and do business again?
Or do they abandon the company because of bad interactions?
Qualitative Analysis In Investing
Answering these questions may be difficult, because not all companies are willing to let investors probe into the business freely.
Many investors rely on news reports and company filings to get a sense of the philosophy and personality behind a company.
One particularly useful report for this kind of analysis is the management discussion and analysis (MD&A) section of a company’s 10-k report, which is required by the SEC to be published to shareholders.