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Quantitative business analysis is the process of using financial information and statistical models gleaned from that information as a means for judging the strength of a business. The process can be performed by outside investors who are trying to decide whether the business in question is a worthy investment. It can also be used by the managers of a company to help make decisions on the future of the business. No matter who is performing quantitative business analysis, they must be careful to input correct and pertinent information into their statistical models to make sure that the output that is produced is relevant and useful.
There are many different ways to judge a business. Profitability, brand recognition, market price, and customer relationships are just some of the criteria that can be used to determine whether or not a company is successful. Analysts have ways to assign numerical values to all of these characteristics, which can then be broken down into ratios and other statistics that are easily comparable. This process is known as quantitative business analysis.
One of the best examples of how quantitative business analysis is performed is the use of financial ratios. Financial ratios take pieces of financial information gleaned from balance sheets and income reports and, through a simple mathematical process, create a ratio. These ratios can provide a glimpse of some aspect of a company's operations, such as its efficiency or reliance on debt. This information can also be compared directly to other companies to find out whether the business in question is competitive within its industry.
Many different stakeholders may benefit from performing quantitative business analysis. Investors can use it as a way of judging companies, deciding whether or not they are worthy of investment capital. By contrast, business managers can use the analysis to find out in which areas their business may be thriving and, perhaps more importantly, in which areas they might need improvement. This information can inform all business decisions.
It is important to understand that quantitative business analysis can have its drawbacks if performed incorrectly. Many amateur analysts attempt to cram too much information into their models, even if that information is irrelevant and might skew results. In addition, performing quantitative analysis without context is ultimately meaningless. For example, a financial ratio showing how profitable a company is means little if it is not compared to companies within the same industry for some point of reference.