When it comes to buying a particular stock from the market, the first thing people look at its performance over the past few months or even weeks. For many, it becomes difficult to gauge the actual performance of the stock as there are hundreds of factors that play a great role in determining the past and future performance of a stock and one of the proven ways to get them is a qualitative analysis of stocks.
Generally, we look at the past numbers of the stock like its growth rate, the volume of shares, dividend yield, Net profit, margin, etc, but this is where miss the other side of the coin – qualitative aspect. Let’s find out what qualitative analysis is and how can it help traders and investors in choosing the most appropriate stock.
What does Qualitative analysis of stocks mean?
Qualitative analysis refers to the use of non-quantifiable details in a bid to determine the investment scenarios of a company. This information may be inclusive of management quality, the satisfaction of its stakeholders, morals, brand value, etc. This is also called soft information. This soft data primarily relates to the factors that are intangible.
As far as quantitative analysis is considered, it actually includes the inspection of numbers like income statement ratios, net profit, margin, dividend, cash flow statement, balance sheet. The major influence of differentiation is that quantitative data can be chomped by artificial intelligence using strong analytical tools. On the other hand, qualitative analysis requires a human approach to data fetching.
Why qualitative analysis of stocks necessary?
Though getting the past performance of a stock and predicting its future course can be easily determined by doing the quantitative analysis of stock, the qualitative aspect of stock analysis is helpful when it comes to determining the depth of a business. It helps in determining how a company generates money, its individuality versus the competition, which folks are into decision making, and how they look at ordinary shareholders. Having all of this data can provide a detailed idea of how a company proposes to grow its business while gratifying shareholders.
Many of these factors are not quantifiable because they are extremely subjective in nature. Likewise, when you are analyzing a company for investment it is always great to know the company’s management, their expertise, style of management, and their philosophy as a whole.
How qualitative analysis of stocks is performed?
In general, the stockbrokers in India are known to do this type of analysis for its clients who look forward to them when it comes to knowing everything about a specific stock, they are interested in. however, this analysis can be done by a person himself after putting in some time and efforts. Let’s look at how it can be done.
It is a good step to know who leads the company. This may include CEO’s, Board of Directors, Chairmen, etc. If a new CEO is being appointed checking if he is the best fit for the company goes a long way. One would always go with someone who is immensely experienced in successfully managing a company in the industry over a person who is new to the market.
Deeper background checks of the person tend to give a clear picture of the past of the person. Ideally, the person should be visionary and love to promote innovation. This is surely a positive indicator for the company’s growth.
- Employee satisfaction
The way a company treats its employees plays a pivotal role in determining its success. In general, a company with a higher employee turnover ratio means that the company has a toxic or unhealthy work scenario. The role of an employee in establishing a company’s reputation is quite important and should be taken as a major determinant.
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A high level of employee satisfaction means that the company takes good care of its employees by offering various remunerations, benefits, and growth opportunities.
- Supplier satisfaction
It is very much necessary for a company to ensure that they treat their suppliers in a fairway. This is because a healthy buyer-supplier relationship goes a long way. There are various examples around us that exhibit that companies that maintain a healthy relationship with their suppliers go a long way in determining their success.
- Client Satisfaction
Ultimately, it is the client on whom the fate of a business lies. This is why this factor should be a top priority when it comes to doing the qualitative analysis of stocks. A business that has happier clients is always on the path of growth and success. So, be sure to look at this aspect before investing in a specific stock.
- Brand Appeal
Many businesses have amazing brands. For example, Tata Group has strong brands such as Tata Steel, Tata Motors, etc in its product portfolio.
Correspondingly, any patents, trademarks, licenses also have great value entrenched in it that generates revenues for many years or decades. How well these brands perform will also regulate the success of the product line and affect the company’s performance too.
- Other factors
There are several other factors that are found to be important in qualitative analysis. They may include the competitive rewards of a company, patents it has, brand value, ditches in its industry, etc.
Though getting details about them is a bit difficult, they still play a greater role in business analysis. All top 10 stock brokers in India take these factors into consideration while doing such analysis.
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