Qualitative Factors in Fundamental Analysis
Qualitative analysis is that part of fundamental analysis where the investor looks at the intangible factors of the company as part of a company as part of the process of assessing its health and future prospects. While this part of the fundamental analysis process is more subjective than the quantitative aspect (which looks at hard numbers), many investors believe it is equally important. Qualitative factors might include such things and the company’s business model, its management team, competitive advantages, and corporate culture.
Some Qualitative Factors in Fundamental Analysis
Business Model: Generally speaking, a company’s business model describes the company’s day-to-day operations and how it makes money. The business model serves as a working description of the company’s operations and looks, from a high-level, at how it goes about generating revenues, the expenses it incurs, the company structure, and sales and marketing efforts. After reviewing the company’s business model, the investor should come away with a belief that the company has positioned itself for success.
Management Team: One of the primary keys to success for any company is its management team and that teams’ ability to develop and cultivate a powerful vision for the company while successfully navigating changing competitive and economic conditions. In assessing the strength of the management team, many investors will look at their backgrounds to see if there is a track record of success at previous companies. If it’s a public company, there will be a section of the company website that provides biographical information for each of the top executives.
Competitive Advantages: The long-term success of the company also has a great deal to do with any competitive advantage the company might enjoy. If through your investigation you determine that the company has developed a wide moat, it will be hard for current and future competitors to take away market share. In general, companies seek to develop a competitive advantage through price leadership, product superiority or brand loyalty.
Corporate Culture: A company’s corporate culture it its way of instilling a general ideology or philosophy into its brand. You can think of company’s corporate culture as its personality and how it expects its employees to think and behave. Wrapped into the corporate culture are the company’s mission, its ethics, and values. Given this, it’s not hard to see how the cultivation of a winning culture is critical to a company’s long-term viability.
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The above information is educational and should not be interpreted as financial advice. For advice that is specific to your circumstances, you should consult a financial or tax advisor.
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