Basic Techniques of Quantitative Business Analysis

Instructor: Kat Kadian-Baumeyer

Kat has a Master of Science in Organizational Leadership and Management and teaches Business courses.

Quantitative business analysis requires the use of simple mathematical calculations to make financial decisions. By having a good understanding of fractions, decimals and percentages, creating and analyzing charts, graphs and tables is easy.

What Is Quantitative Analysis?

To put it in the simplest terms, quantitative analysisrelies on using mathematics to solve business issues with measurements based on verifiable information, like the data found in sales reports or income statements. What makes quantitative analysis so valuable to financial people is that much of the data can only be interpreted one way. It's not subjective.

For example, Tina owns an herbal shop in town. She's been in business for a little over ten years. In the past couple of years, she noticed that her net income is lower than in previous years. With the right data, Tina will be able to figure out the problem.

Tina could blame it on lower than normal sales volume. She could even say that the price of herbs has increased. Going out on a limb, she could blame trends in herb preferences. But that will all be speculation without the right data.

But before Tina can even begin to state a hypothesis for the decline in profits, she needs to do some quantitative analysis. Let's see how Tina does this by applying mathematical functions, like fractions, decimals and percentages, and implementing sampling, surveys and case studies to solve her revenue problem.

Important Quantitative Analysis Terms

Fractions, decimals or percentages are numbers we use to measure things. Fractions take a whole number and divide it into smaller pieces. Tina might use fractions to determine how much of each herb she sold in a year.

A decimal is any number, whole or not and based on a 10-number set. So, the number 5 is $0.05 cents like in dollars and cents. Tina might use decimals when reporting sales figures. She can round up or down depending on the amount like this:

$3.59 would post as $4.00 $3.29 would post as $3.00

Percentages would be used in a pie chart. Think of a percent as 100 and a percentage as a part of that 100. If Tina counted the number of jars of basil, oregano and thyme that were sold last year and created a pie chart from the numbers, the percentage of each would look something like this:

Herb Pie Chart

Once Tina has the total number of jars sold, dividing it up on a pie chart is easy. A quick analysis tells us last year Tina sold an equal amount of each herb. This may rule out customer preference.

Tina still has two other hypotheses to discount: lower sales volume and higher cost of materials (herbs). She can use a chart to determine the cost of herbs over time. Once she plots invoices from the previous year and the current year on a spreadsheet, the results of the table will reveal whether she is paying more for spices in the current year than in the previous year.

Tina can also measure sales volume in the same way. By plotting sales from the previous year and the current year, she can easily see whether there have been significant changes.

Samplings and Case Studies

Let's assume Tina found nothing significant in the quantitative analyses she performed. She may want to use another method of quantitative analysis. She can simply survey people to find out whether the three herbs she offers even make sense for her business.

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