What is a qualitative analysis?
A qualitative analysis is based on non-quantifiable information. Qualitative analysis focuses on meanings, is contextual rather than based on universal generalizations, and provides broad descriptions rather than quantifiable measures. Subjective judgment is used, such as management expertise, industry cycles and labor relations. Qualitative analysis therefore deals with data and information that is not quantifiable or difficult to measure. In contrast, quantitative analysis is based on figures, calculations and reports. Qualitative data and information includes, for example, positive associations with a particular brand and the trustworthiness of the management. Qualitative analysis usually focuses on people. The business model and the competitive advantage of a company are also important components of qualitative analysis.
A combination of qualitative and quantitative analysis
Many quantitative analyses have their weaknesses. For example, a few years ago the McDonald’s Corporation’s figures could not tell us anything about changes in people’s attitudes towards unhealthy food. This is why qualitative information is so important. Qualitative analysis is not easy to master, but requires years of experience in business to get a picture of how a company works. Investors who have this knowledge have an advantage over investors who rely solely on quantitative analysis.
Qualitative information, such as the subjective assessment of the integrity, trustworthiness and business skills of the company’s management, should be taken into account when making investment decisions. Qualitative analysis also includes observing employees, interviewing vendors who do business with the company and the company’s public reputation.
However, a purely qualitative approach also has weaknesses. For example, the approach is very susceptible to bias due to personal prejudices and opinions. This is why qualitative and quantitative analysis are often used together, for example to examine the business viability of a company or to evaluate the potential of an investment opportunity. Conducting qualitative analysis is often time consuming and requires a lot of experience in different areas. A good asset manager has a broad range of expertise and can therefore provide you with the best possible support through the combined application of quantitative and qualitative analysis.