Financial analysis is procedures and methods completed by the office of finance, and financial management is "a way to get separate finance-related business functions to run in a smooth, coordinated way." (Achuthan, 2021, para. 1) But, financial analysis is the "process of evaluating businesses, projects, budgets, and other finance-related transactions to determine their performance and suitability." (Alicia Tuovila, 2022, para. 1)
This article researches the appropriate qualitative and quantitative approach on an organization that struggles financially against a very competitive product market and needs to change or shut down based on the recommendations. This paper will suggest the advantages and disadvantages of each approach for the given problem. Finally, this paper aims to provide the best practice for the company to survive its financial problems using each research method.
Understanding Financial Analysis
Financial analysis is used for planning, budgeting, and modeling the capabilities of approval workflows and reporting in one scalable solution. The best definition of financial analysis, in general, is "the examination of financial information to reach business decisions. This analysis typically involves an examination of both historical and projected profitability, cash flows, and risk. It may result in the reallocation of resources to or from a business or a specific internal operation. This type of analysis applies particularly well to the situations noted below." (Bragg, 2022, para. 1) The source and origin of data for financial analysis, however, is the "financial statements of a business." (Bragg, 2022, para. 5) It is essential to mention that the financial analysis between the size and types of organizations and corporations can be very different because the ratio analysis differs compared to the size of companies.
Qualitative financial analysis
Qualitative financial analysis is a subjective approach to analyzing the non-qualifiable data extracted from the organization's value and prospects. (Tim Smith, 2021, para. 1) A qualitative financial analysis approach could use for loss or gain, management expertise, industry cycles, or even labor relations through the organization and its financial systems. However, a Qualitative selective approach is practical when analyzing the intangible and inexact value data. Qualitative financial analysis is also a perfect idea if the focus would be from the customers' and competitors' points of view. In this method, the researcher focuses on a "variety of factors, such as industry trends, the effectiveness of a company's management and the strength of a particular brand, to form an opinion about the company and its stock." (RBC, 2021, para. 3)
Quantitative financial analysis
Qualitative research is objective and focuses on numbers, mathematical and statistical formulas, and models for measuring and understanding the behavior of financial outcomes. Therefore, the quantitative analysis represents "a given reality in terms of a numerical value." (How Quantitative Analysis (QA) Works, 2020) Qualitative financial information, including measurable data, such as revenue, expenses, profit margins, and taxes, can be broken down into more detailed financial performance information and reports. Therefore, a quantitative research analysis brings the numerical values to reality and applies to the "measurement, performance evaluation, valuation of a financial instrument, and predicting real-world events." (Will Kenton, 2020, para. 1)
Qualitative Financial Analysis (QFA), most importantly, is an excellent tool to "examine and analyze past, current, and anticipated future events." (Will Kenton, 2020, p. 2), which is used in many financial fields, including social science, organized sports, etc. QFA is a powerful tool for investors to perform and get the idea of gain and loss of the company using "key financial ratios, such as the price-earnings ratio (P/E) or earnings per share (EPS), in their investment decision-making process." (Will Kenton, 2020, p. 2)
Quantitative Financial Analysis vs. Qualitative Financial Analysis
As we learned the roles of each Qualitative and Quantitative financial analysis to aim the company's financial security, the best practice would be the use of a Quantitative analysis method with "complementary research and evaluation tool Qualitative analysis." (Will Kenton, 2020, p. 3) Because as we mentioned above, financial analysis and reports may have lots of un-quantifiable data, which is impossible to evaluate with Quantitative data analysis. Financial data could have information about the reputation reports in the past and its prospects in the future, or even it could have employees' moral information, in which none of them are quantifiable. Therefore, the best practice is to use a Qualitative analysis inside the Quantitative analysis as a tool.
Using this combination, a mix of both Quantitative and Qualitative analysis, we can help the company to find the root of issues in-depth, including the "why" and "how," instead of just numbers and models comparisons. Therefore, "in a combined qualitative and quantitative analysis project, a company, analyst, or investor might wish to evaluate the strength of a product. Qualitative tools used for the project can include customer surveys and panel discussions. A quantitative analysis of the product can also be initiated through the examination of data regarding numbers of repeat customers, customer complaints, and the number of warranty claims over a given period." (Will Kenton, 2020, p. 4)
Critical evaluation
Credibility, or confidence, in general, in my opinion, is the most crucial part of all humanity, and it is the criteria of "the truth of the study and therefore the findings, is the most important criterion" (Polit & Beck, 2014)
Types and methodologies to Survive
Using a Quantitative analysis with the complimentary use of the Qualitative analysis method -- to answer the "why" and "how" problems -- in the business with deep loss problems, this paper suggests the following research methodologies to carry out the business research:
1- Survey research, This method aims the organization to collect primarily for conducting business research, which involves various questions through online or offline techniques. We can conduct online polls, surveys, questionnaires through email, links, etc.
2- Correlational research, Correlational research is used to determine the relationship between the company and its competitors. This method used mathematical analysis using different business values to compare and find out the weaknesses and strengths.
3- Causal-Comparative research, Causal-Comparative research is similar to the Correlational research method, and it needs values to compare but not on different entities. This method uses independent variables and analyzes the effects of dependent variables. (Bhat, 2020, p. 2)
4- Experimental research, This method is used to prove a theory and is used in "business research as it can let the production company know some behavioral traits of its consumers, which can lead to more revenue." (Bhat, 2020, p. 3)
5- Online research / Literature research, Using online research, we can gather numerous useful data, such as studies, similar business issues in the different or same industry, etc.
References
Achuthan, N. (2021, October 5). Powering Finance Business Processes With Automation. Kissflow. Retrieved 2022, from https://kissflow.com/finance/finance-processes-list/#:%7E:text=Financial%20processes%20refer%20to%20the,in%20a%20smooth%2C%20coordinated%20way.
Alicia Tuovila. (2022, February 7). The Basics of Financial Analysis. Investopedia. Retrieved 2022, from https://www.investopedia.com/terms/f/financial-analysis.asp
Bhat, A. (2020, February 27). Business Research: Definition, Methods, Types and Examples. QuestionPro. Retrieved 2022, from https://www.questionpro.com/blog/business-research/
Bragg, S. (2022, February 22). Financial analysis definition. AccountingTools. Retrieved 2022, from https://www.accountingtools.com/articles/what-is-financial-analysis.html
Will Kenton. (2020, November 27). Investopedia. Retrieved 2022, from https://www.investopedia.com/terms/q/quantitativeanalysis.asp #:%7E:text=Quantitative%20analysts%20represent%20a%20given,gross%20domestic%20product%20(GDP).
Research and markets: Quantitative analyses of financial statements for NEXT PLC. (2010, Jan 28). M2 Presswire https://coloradotech.idm.oclc.org/login?url=https://www.proquest.com/wire-feeds/research-markets-quantitative-analyses-financial/docview/444103228/se-2?accountid=144789
RBC. (2021). Qualitative and Quantitative: Two Complementary Approaches to Research. Royal Bank of Canada. Retrieved 2022, from https://www6.royalbank.com/en/di/reference/article/quantitative-qualitative-research/ilsa7rtg
Tim Smith. (2021, April 22). Qualitative Analysis. Investopedia. Retrieved 2022, from https://www.investopedia.com/terms/q/qualitativeanalysis.asp
Zenzerović, R., & Valić-Vale, M. (2016). Diagnosing companies in financial difficulty based on the auditor’s report. In Croatian Operational Research Review (Vol. 7, Issue 1, pp. 147–158). Croatian Operational Research Society. https://doi.org/10.17535/crorr.2016.0010
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