Wednesday, September 9, 2015

Quantitative Business Tools

Quantitative or qualitative analysis--or both?


Running a business requires owners and managers to use a variety of tools for managing and measuring performance. Management tools can be qualitative or quantitative. Qualitative analysis relies on the judgment or interplay of managers and/or owners. Quantitative tools apply mathematical or statistical formulas to the company's information. Owners and managers use quantitative business tools to bring a logical and rational approach to business management analysis.


Financial Ratios


Financial ratios are mathematical ratios that break down the information on a company's financial statements. Ratios provide indicators that measure the company's ability to meet short-term obligations, profitability on sales and use of assets to generate revenues. Not only can financial ratios provide indicators for internal reviews, but they also allow owners and managers to compare the information to other companies. Ratio indicators below the industry standards allow business owners and managers to focus on areas to make improvements in their business.


Forecasting


Forecasts are internal business calculations that provide estimates for production output or sales revenue. Business owners use forecasts to make plans for purchasing economic resources and other inputs needed to produce consumer goods and services. A common forecast method is the "percent-of-sales." Percent-of-sales calculates an estimate for the cost of goods sold and expenses for a specific time period. Business owners and managers base these percentages on a sales figure, which can represent a previous time period or an average trend of gross sales.


Economic Models


Economic models are quantitative analysis tools that account for internal and external business information. Owners and managers use tools like decision trees, game theory or supply and demand to calculate how well the company will operate under certain conditions. These models take into account the number of competitors, probability of success and the role of consumers in different economic situations. Economic models can also provide business owners and managers with multiple outcomes. Different economic information can be inputted in the model so a best-case, average and worst-case scenario is available.

Tags: owners managers, business owners, Business owners, Economic models, information Owners