What is Quantitative Analysis?

//What is Quantitative Analysis?
What is Quantitative Analysis? 2017-10-09T07:59:09+00:00

Definition: Quantitative analysis is a mathematical and statistical method of studying behavior and predicting outcomes that investors and management use in their decision-making process. Through the use of financial research and analysis, this form of analysis seeks to assess an investment opportunity or estimate a change in a macroeconomic value.

What Does Quantitative Analysis Mean?

What is the definition of quantitative analysis? Using complex financial and statistical models, this analysis quantifies objective business data and determines the effects of a decision on the business operations. With respect to investing, this approach quantifies trends following patterns and strategies of high-frequency trading to identify the correlation between the variables and determine the worthiness of an investment.

The most commonly used forms of quantitative analysis in business are the cost-benefit analysis, the break-even analysis, the statistical analysis, and the feasibility study.

Let’s look at an example.

Example

Business decision-making involves monitoring a firm’s operational performance and taking a business decision that can improve operational results. However, if the quantitative results do not justify the decision taken, a manager has to change the variables and use a different approach to a business problem.

For example, Philip, a manager at a leading publishing company, wants to change the outlay of one of the company’s most successful magazines. Philip believes that this change will bring enormous traffic to the magazine, thereby increasing the firm’s profitability.

The cost of changing the magazine’s outlay is estimated at $80,000, and it includes the fees of the professional design firm that will undertake the project. Philip takes into account the company’s extended customer base, its distribution network, and its branches overseas. By performing a cost-benefit analysis, Philip estimates that the new magazine outlay will increase the firm’s profitability by approximately $225,000, which makes a minimum profit of $225,000 – $80,000 = $145,000. By subtracting the advertising costs of $15,000 the minimum net profit will be $130,000, which is, in fact, 62.5% return on investment.

Based on the analysis, Philip will proceed with his business decision.

Summary Definition

Define Quantitative Analysis: An economic tool used by management and investors to analyze financial events and make investment and business decisions.