Unlike the more common quantitative methods, a financial qualitative statement moves away from hard numbers into a description of what those numbers mean in the real world. In a quantitative statement, the report may give the exact yearly revenue of the firm with a trend analysis over the last several years. A qualitative statement would give the revenue with a discussion of the circumstances that caused ups and downs and provide comparisons to show how the firm did in relationship to other firms in the same field. In basic terms, qualitative information attempts to put everything in context, providing a wider area of understanding.
In many cases, a qualitative statement is used as a way of giving important information to people without the skills and background to fully understand a hard numbers statement. When a company needs to make an important decision, most executives will have little luck sorting through piles of spreadsheets. In order to provide the required information clearly and quickly, a qualitative report will focus on important areas without being overwhelmingly full of data.
Most qualitative statements focus on four key areas: relevance, reliability, readability and timeliness. A relevant report will only contain information that is directly related to the purpose of the statement. While knowing certain facts may be interesting to the reader, if it is not directly related to the matter at hand, it is not in the report. This both simplifies and shortens the statement.
Reliability is the method used in a qualitative statement that provides the ability to directly compare multiple disconnected entities. Basically, this means that the statement uses a set of comparison points between a company and its competitors that is exactly the same in each company. For example, if the statement discusses the profits in March for one company, all other comparisons will be against March figures in other companies.
The hallmark of a common qualitative statement is readability. These documents forgo common hard numbers and trend analysis in favor of a more narrative document. This means that, while there are still charts and graphs, the majority of the information is presented in text. The text is written in such a way that a person unfamiliar with finance and accounting can still understand the flow of the document.
The last common trait of a qualitative statement is timeliness. The document deals with information that is both current and relevant to the statement. If the company is considering starting a new product line, the document will not have trend analysis reports for three years prior. These documents are made to allow a quick decision based on up-to-date information, older data quickly becomes too obsolete.
