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Unlike more common quantitative methods, a qualitative financial statement moves from hard numbers to a description of what those numbers mean in the real world. In a quantitative statement, the report can provide the company’s exact annual revenue with an analysis of trends over the past few years. A qualitative statement would provide the recipe with a discussion of the circumstances that caused the ups and downs and provide comparisons to show how the company fared relative to other companies in the same field. In basic terms, qualitative information tries to put everything in context, providing a broader area of understanding.
In many cases, a qualitative statement is used as a way to provide important information to people who do not have the skills or experience to fully understand a hard numbers statement. When a company needs to make an important decision, most executives will have little luck sorting through reams of spreadsheets. To provide the information you need clearly and quickly, a qualitative report will focus on important areas without being too cluttered with data.
Most qualitative statements focus on four main areas: relevance, reliability, readability, and timeliness. A material report will only contain information that is directly related to the purpose of the statement. While knowledge of certain facts may be of interest to the reader, if it is not directly related to the topic at hand, it will not be in the report. This simplifies and shortens the instruction.
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 for each company. For example, if the statement looks at one company’s March earnings, all other comparisons will be made to other companies’ March figures.
The hallmark of a common qualitative statement is readability. These documents forego common hard numbers and trend analysis in favor of a more narrative document. This means that while tables and graphs still exist, most of the information is presented in text form. The text has been written in such a way that a person who is not familiar with finance and accounting can understand the flow of the document.
The last common thread of a qualitative statement is opportunity. The document deals with current and relevant information for the declaration. If the company is considering starting a new product line, the document will not have trend analysis reports from three years prior. These documents are made to allow a quick decision based on up-to-date information, older data quickly becomes very outdated.