Qualitative Analysis in Commercial Real Estate Financing

By Published On: August 13, 20214.3 min read

Qualitative analysis is a technique that examines non-numerical data such as audio, video and text to gain insights into an event, condition or experience. Qualitative analysis can provide in-depth information about a problem or to identify new areas for research.

Researchers in disciplines such as social science, health sciences and the literary arts use qualitative analysis for their studies. In finance, qualitative analysis is used to evaluate companies, investments, business opportunities and assets under management.

Qualitative analysis is subjective and focuses on non-quantifiable information. This approach differs from quantitative analysis, which is an objective analysis that focuses on numbers and quantifiable data. However, both methods are helpful in evaluating companies and determining the potential of investment opportunities.

Key Points

  • Qualitative analysis is subjective and focuses on non-quantifiable data.
  • Qualitative analysis examines text, video, audio and other non-numerical data.
  • Qualitative and quantitative analysis are different but complementary. Both are used to evaluate companies and investment opportunities.

Qualitative Analysis vs. Quantitative Analysis

Qualitative analysis examines non-quantifiable, intangible and inexact information. It is more concerned with social and experiential data than with statistics or mathematics. Qualitative analysis can seem intuitive but it is guided by a rigorous approach. Often, qualitative analysis demands more effort than quantitative analysis.

On the other hand, quantitative analysis examines numbers and exact inputs such as revenue, sales and profit margins. Financial analysts can use these numbers to compute results that give an objective value of an investment, such as the fair value of a house or a country’s likely Gross Domestic Product. Humans create the software for calculating these results; thus, some subjectivity is inevitable. However, the results are replicable and calculated in nanoseconds.

Qualitative analysis deals with the data that computers can not readily parse. It studies the aspects of human behavior and business practice that numbers can not capture. Things like the ambiance of an environment, how highly properties in a certain location are rated, positive or negative superstitions tied to the property are hard to capture in numbers but vital for a property’s performance and qualitative analysis studies them.

Qualitative Analysis and People

Behind every company’s robust earnings (or losses) are the people that made it possible. An investor conducting a qualitative analysis would examine the people in the company. Beginning from the company’s management, investors would want to know their educational and professional backgrounds, previous experience, relationships and reputation. They would also be interested in their work ethic and information that gives an insight into their personalities, such as scandals, awards or associations.

Qualitative Analysis and Company Culture

Qualitative analysis can also examine a company’s culture. A company’s culture can make or break it. Qualitative analysis can investigate the way employees view the company. Are employees motivated? Do they rate the company highly? Is the turnover rate high? Is the company culture vibrant and creative or bureaucratic and dull? Qualitative analysis helps to answer those questions.

Qualitative Analysis, Gathering Data

Gathering data for qualitative analysis can be challenging. Before any data gathering, the objectives of your research have to be defined. What exactly do you want to know? What is the best way to get that information? Anonymized surveys with open-ended questions, interviews with key staff, examining exit interview data, news, and internal documents are also helpful.

Qualitative Analysis and the Market

No company operates in a vacuum. They have customers and competitors. Qualitative analysis can help determine how well a company meets its customers’ needs and how it performs compared to its competitors.

Customers are vital for any company’s success. Companies with a long-term outlook must place their customers first. Even if a company seems to have improved revenue, low costs, and an impressive profile, an examination of their customer satisfaction can show how profitable they will be in the long run.

For instance, if a coffee chain posts incredible profits and low costs, you might consider buying their shares. However, if you try their services and find their facilities untidy, their staff rude and their drinks tasteless, that shows that they don’t care about their customers. Such a company isn’t likely to do well long-term, and you should probably channel your investments elsewhere.

Qualitative analysis can also examine a company’s competitive advantage and business model. Does the company have any inventions or intellectual property that gives them an edge over their peers? How good are they at what they do? How broad is their reach? Are they local, regional, national, international or global? Do they have a cultural edge? Are they likely to be viable for the next twenty years or more? How strong is their brand? Qualitative analysis.

Qualitative Analysis in the Real World

While quantitative analysis seeks to measure things, qualitative analysis seeks to understand them. To apply qualitative insights successfully, you have to get the proper context. It is also important to identify outliers and know that some things are difficult to predict. For example, a CEO who dropped out wouldn’t be a great indicator but Mark Zuckerberg and Bill Gates defy that logic. Likewise, it would have been hard to predict the effect COVID-19 would have on travel and the rise of virtual communication companies like Zoom.

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