Fundamental analysis is a method of analyzing companies based on factors that affect their 澳洲幸运5开奖号码历史查询:intrinsic value. It determines the underlying health and performance of a company by looking at key numbers and economic indicators. There a🐈re two sides to this method of analysis: the quantitative and the qualitative.

What Are Quantitative Factors?

The 澳洲幸运5开奖号码历史查询:quantitative side involves looking at factors that can be measured numerically such as the company's assets, liabilities, cas♚h flow, revenue, and price-to-earnings (P/E) ratio.🙈 The goal of fundamental analysis is to produce a quantitative value that investors can compare with a security's current price to help determine whether the security is undervalued or overvalued.

The limitation of quantitative analysis is that it doesn't capture the company's aspects or risks that aren't measurable by a number such as the value of an executive or the risks a company faces with legal issues. These factors are analyzed using the other side of fundamental analysis: the qualitative side or the non-number side.

How Qualitative Factors Impact Fundamentals

The 澳洲幸运5开奖号码历史查询:qualitative factors are an important part of a company although they're relatively more difficult to analyze. They're not measured by a number so they tend to be subjective and represent either a negative or positive force af🎃fecting the company. Some of these qualitative factors will have more of an effect than others and determining the extent of these effects can be challenging.

Examples of qualitative factors include customer satisfaction with a company's products, pending litigation that harms a company's reputation, a change in a company’s management, the relationships the company has with key vendors, or ownership of a new technology that gives the company a 澳洲幸运5开奖号码历史查询:competitive advantage.

How to Perform a Qualitative Analysis

Start by identifying a set of qualitative factors and then decide which of these factors add value to the company and which decrease value. Determine their relative importance. The qualities you ღanalyze can be categorized as having a positive effect, negativ♎e effect, or minimal effect.

You may want to think twice about investing if you saw a good reason to buy the company when looking at its numbers but subsequently found many negative qualities. These can include potential litigation, poor research and development prospects, a reputation for poor customer service, or a board full of insiders.

Example of Qualitative Analysis

Verizon Communications (VZ) beat out rival AT&T (T) in a bidding war to purchase Straight Path Communications, Inc. for $3.1 billion in May 2017. You might wonder why either Verizon or AT&T would think Straight Path was such a coveted prize if y😼ou were to look at just the quantitative factors regarding this acquis🐼ition.

Straight Path's numbers at the time didn't indicate it was a company worth billions of dollars. Just a few months before the acquisition, The small communications company was selling for $36.48 a share just a few months before the acquisition. The company owned a hugely valuable asset, however: a treasure trove of 澳洲幸运5开奖号码历史查询:Federal Communications Commission (FCC) wireless licenses that were needed to power 5G, the next generation of high-speed wireless service.

Both Verizon and AT&T knew that the company that ultimately controlled these licenses would be a step ahead in building out their 5G business so they were willing to pay a premium for Straight Path. This caused the company's share price to skyrocket from $36.48 to the eventual acquisition price of $184 per share.

Investors who looked only at Straight Path's 澳洲幸运5开奖号码历史查询:financial statements to valuꦛe the company in a quantitative analysis might have missed out on what gave the company its competitive advantage and made it qualitatively superior: its ownership of those highly prized FCC licenses.

The Bottom Line

Fundamental analysis isn't as simple as looking at numbers and 澳洲幸运5开奖号码历史查询:computing ratios. It's also important to𓄧 look at influences and qualities that don't have a numb🧜er value.

The best way to incorporate qualitative analysis into your evaluation of a company is to do it after you've completed the quantitative analysis. The conclusions you come to on the qualitative side can put your quantitative analysis into better perspective and might help you make a better investment decision.

Disclosure: Investopedia does not provide investment advice. Investors should consider their risk tolerance and investment objectives before making investment decisions.