- 0.1 Qualitative Factors Definition:
- 0.2 Qualitative Factors in Decision Making of Company’s Performance:
- 0.3 Quarterly Results Presentations:
- 0.4 Annual Reports:
- 0.5 Executive Compensation:
- 0.6 Corporate Regulation:
- 0.7 The Business Model:
- 0.8 Competitive Advantages:
- 0.9 Epilogue:
- 1 Basics of Fundamental Analysis for Beginners
Qualitative Factors Definition:
Qualitative factors are the end result of the company’s performance that are difficult to measure in accounting terms. Strategic choice to evaluate qualitative factors of the company, business or an industry is through identifying profit margin, management decisions, business model, sales turnover, etc.
In the fundamental analysis of companies, there are general criteria that people keep about this is good, this is bad in a simplistic way, but do not stop to think in strategic choice about the complications that the qualitative factors to see companies, under certain myths and ideologies that have gotten him investors and the media.
Qualitative Factors in Decision Making of Company’s Performance:
Under financial analysis, here are some of the important key element of qualitative factors in making strategic choice on buying or selling the stocks of the company.
Quarterly Results Presentations:
When the CEO (President) or CFO (CFO) of a company are presented to address the issue of the quarterly results, many focus on the question and answer portion and analyze the interlocutor like a politician. The problem that exists is that when there is a human interaction, there is what is called a Halo Effect. A person who is more charismatic and ease of word will have an advantage over a more withdrawn and less stage presence. In those circumstances, to distinguish between the chaff and the wheat, between useful and managerial poetry ends up being a rather complicated task, because everything happens in real time. It can confuse leadership with stage presence, managerial effectiveness with persuasion.
An annual report on the future prospects of the company is presented. And people analyze the accounting reports whether it is recycled material from other years or if it is new, or if past promises were implemented. This process has the same problems halo effect and evaluation in real time. These reports are a prediction of the future, and as a prediction is contaminated with all the subjectivity that has the job of soothsayers and oracles. It has the same problems of quarterly presentations, but this time in relation to the prediction of the future. This is one of the qualitative factors one should consider for analyzing. Which you will better off is serving more as a charlatan prophet dress with a crystal ball, because the future only God knows.
Managers are subordinates of shareholders and interested always displayed as infallible. Compensation systems can encourage inappropriate behavior, where managers say one thing and do another. People notice what portion of the income of executives is composed of shares, and if you sell the shares while talking optimistically about the future way.
Companies have rules, policies, and agencies that monitor compliance, as countries have (or should have) accountability. Those rules should be designed to stop and prevent breaches of ethics. This presents several problems.
- The rules may have loopholes that allow certain types of fraud. There are types of fraud that cannot be covered.
- There are no supervisory structures in the company or that they are not effective to ensure transparency.
- Using the influence of committing fraud to obstruct processes of accountability and oversight.
- The rules of the company can be used as a platform for certain types and fraud by its poor design. A design is like a machine. A machine can be used for good or evil, and it is unlikely that anyone has designed the perfect machine.
- Asymmetries of power between management and shareholders and / or external in partnership with the management of the company concerned.
The Business Model:
Often the investor does not understand a business model. One of the qualitative factor requires understanding the ecosystem in which the company and the interactions and mechanisms of the company to sustain lives. The problem that exists when analyzing the business model does often not fully understand the ecosystem, and sometimes the model itself can be successful one day and the next be obsolete.
How do you know if something is an advantage or a weakness? Unfortunately, in this area, there is much bias given by business schools about what is competitive. The business schools provide much ideology and little substance, beliefs and not realities. The competitiveness of enterprises in practice have to do with the capabilities of their internal processes, talented people and teamwork, equipment, machinery and tools, and none of these factors can be assessed too easily.
At the end the key aspects of a company are not as accessible. Those who are harder to measure are often the most important. At the end, the qualitative factors assessment may involve errors of assessment, where reality is confused with the impression of reality pushed by persuasion and incomplete reality. Even the numbers do not help complete the picture.
People generally decide better when they have portrayed realities more fully. Human reality is the one that best describes how things work, rather than numbers. A football team works with its players, and markers are just the result of their work. You work on the basis of extrapolation of the past, it would like to think that if after studying hard for an exam score of 50 was obtained and then 70 the next review, without studying, you will get 90 mere extrapolations. The study in this case is the result of human action and the rating further reflects the results of a human process.
When the human composition of a company changes, its performance too can change dramatically, often worse, because high and constant rotation is never good.
Read E-Learning Tutorial Courses - 100% Free for All
Basics of Fundamental Analysis for Beginners
- Chapter 1: What is Fundamental Analysis? Definition, Types, Examples
- Chapter 2: Characteristics and Mindset of a Great Investor
- Chapter 3: How to Analyze and Read the Annual Report of a Company?
- Currently Reading: Qualitative Factors in Investment Decisions of Company Analysis
- Chapter 5: What is Qualitative Data Analysis? Methods to Measure Performance
- Chapter 6: What is Cash Flow Statement? Definition, Example, Format, Analysis
- Chapter 7: Financial Ratio Definition, Examples, Ratio Analysis Interpretation
- Chapter 8: What is Investment Due Diligence? Examples, Process, Procedure
- Chapter 9: What is Discounted Cash Flow? Analysis, Examples, Problems
- Chapter 10: What is Equity Research? Definition, Examples, Report Analysis
- Chapter 11: Basics of Fundamental Analysis Quiz - Questions and Answers
We are sorry that this post was not useful for you!
Let us improve this post!
Tell us how we can improve this post?