Trending March 2024 # What Is Discounted Cash Flow # Suggested April 2024 # Top 4 Popular

You are reading the article What Is Discounted Cash Flow updated in March 2024 on the website We hope that the information we have shared is helpful to you. If you find the content interesting and meaningful, please share it with your friends and continue to follow and support us for the latest updates. Suggested April 2024 What Is Discounted Cash Flow

What is DCF Valuations?

In theory, the fair value of an asset is determined by the meeting of a willing, but not anxious, buyer and a willing, but not anxious, the seller. Irrespective of what any theoretical valuation indicates, in practice business or an asset is only worth what a purchaser will pay for it. Different categories of buyers, strategic/corporate buyers versus financial buyers for example, maybe prepared to pay different prices. The value will also be dictated by the level of ownership required:

Investment <20%

Joint venture 50%

A valuation is not a scientific exercise and is dependent on the quality of information available. It is a set of arguments supporting a view on value and we therefore usually express it as a range

Purpose of Valuation

The valuation exercises that we undertake are generally from the view of what a business might cost to acquire or what price it might attract upon disposal. It is extremely important therefore to keep in mind the purpose for which the valuation is intended. Valuations can also be important for the purposes of establishing fee levels in engagement letters.

Different purposes include:

Purchase or sale of a private company

Recommended bid for a public company

Hostile bid for a public company

Break-up valuation

Leveraged buy-out

Contribution to joint venture or merger

Fairness opinion

Asset transfers with a group (tax or restructuring)

Providing of credit facilities

There are primarily three methods of valuations.

Comparable companies analysis (compcos): shows where a company should be trading if it were fairly valued by the market

Comparable transactions analysis (comptrans):  shows us the amount that a purchaser should be prepared to pay by reference to precedent transactions

Discounted cash flow analysis (DCF): shows us the expected value of the business by reference to future cash flows

Other industry-specific techniques (eg takeover premium, leveraged buy-out models, break-ups, sum-of-the-parts (SOTP) valuations, liquidation values, and real options techniques) are also applied.

The suitability of each technique is dependent on the purpose of the valuation and the information available. This note discusses the Discounted Cash Flow (DCF) technique for valuing a business.

Next Steps

Now that we have understood the purpose of valuations, we move forward and introduce you to the most famous (or infamous) Discounted Cash Flow approach.  Till then, Happy Learning!

What is a discounted cash flow analysis?

Introduction to Discounted Cash Flow Valuations

Discounted cash flow analysis (DCF) shows us the expected value of the business by reference to future cash flows. Discounted cash flow analysis involves estimating the present value of the future cash flows that the business being valued is expected to generate. DCF analysis requires high quality historic and projected financial information on the business. The quality of the financial information is crucial to Discounted Cash Flow valuation – “garbage in… garbage out”.

The particular information required will depend on the nature of the company being valued but at the most basic level, detailed assumptions over the projected period are required for:


Operating margins

Interest charges

Taxation charges

Depreciation charges

Capital expenditure

Working capital movements

There is a danger of over-generalizing in preparing cash flow forecasts – i.e. assuming a constant growth rate after the first couple of years. It is important to question the forecasts and consider all cyclical, industry-specific and other general or macroeconomic influences. Rather than discounting cash flows indefinitely into the future, a terminal value, based on the company’s long-term growth rate (perpetual growth rate methodology) or a multiple of the final year’s earnings or cash flow (exit multiple methodology), is usually assumed after a period of, say, five to ten years.

The terminal value can represent a very high proportion of the overall valuation of the business (particularly in a company pursuing long-term growth and investing heavily during the forecast period).

 A Discounted Cash Flow valuation is only as accurate as of the assumptions/key sensitivities underlying it and the easiest way to establish a margin of error is to vary the principal assumptions.

In theory, the choice of discount rate or assessment of the internal rate of return will depend critically on the cost of debt and the market risk premium in the country of the target, the share price volatility of the target and the level of debt of an optimal target structure. However, a purchaser would have to consider other issues, such as its funding costs and the value of the business to it.

Steps for Applying Discounted Cash Flow (DCF) Method

You're reading What Is Discounted Cash Flow

Amazing Things You Must Know About Discounted Cash Flow Analysis

Introduction To Discounted Cash Flow Analysis

Start Your Free Investment Banking Course

Download Corporate Valuation, Investment Banking, Accounting, CFA Calculator & others

Step 1: Projections of Income Statement

A simplified Discounted Cash Flow analysis can be created, which projects only the items in the FCFF formula. However, a more rigorous approach pulls such results from a fully integrated three-statement model. In forecasting future cash flows, you should know the sensitivity of cash flow streams over the forecast period. The traditional method of discounting cash flows assumes that cash flows occur at the end of each annual period. It may sometimes be more accurate to forecast cash flows assuming they fall evenly throughout the years.

How Long to Project Cash Flows Depends on the Following:

Industry cycle and competitive structure (operating margins)

Economic cycle

Known significant events

The useful life of the asset (e.g., oil well, mine)

Comfort of forecaster

Allow enough time to reach a normalized or mature level of cash flows which assumes constant growth and capital needs into perpetuity.

While projections become less reliable the further they go, it may be necessary to go out up to 10 years or more to reach a normalized level of free cash flow. 

Sources to Project Free Cash Flows

The free cash flows from a business can be projected using information about the industry in which a business operates and information specific to the business. Various sources, such as research reports, S&P industry surveys, industry journals and manuals, and other miscellaneous sources, can be used. Discounted Cash Flow analysis is an attempt to look at the company’s pure operating results, free and clear of extraordinary items, discontinued operations, one-time charges, etc. It is also extremely important to look at the historical performance of a company or business (margins, growth) to understand how future cash flows relate to past performance.

In summary, Discounted Cash Flow analysis projections should be based on the following:

Historical performance

Company or management projections

Industry estimates

Industry data

Macroeconomic data (e.g., long-term inflation and growth rate forecasts)

Common sense

Projections Using MS Excel

Let us now look at how we forecast the key variables of FCFF in ABC Example (Please refer to the Discounted Cash Flow Excel Sheet provided)

Solutions for the above forecasts

Solutions for the above forecasts

Discounted Cash Flow Analysis Projections Reality Check

Confront Sales Growth Assumptions with Underlying Market Dynamics

Be skeptical of projected sales growth curves that look show dramatic improvements versus recent actual performance.

Does the increase in sales reflect a constant market share in an expanding market? If so, why is the market expanding?

Does that assumption agree with industry projections?

If it is an expanding market, why will the company be able to maintain a constant market share? Or does the increase reflect a rising market share in a stagnant market? If yes, why?

Are some firms leaving the industry? Why?

Check the Reasonableness of Margins

Be clear on the actions or events needed to trigger improvements in margins (or reasons for decreases in margins)

Are the margin levels consistent with the structure of competition in the industry?

Any risk of new entrants/substitute products that will drive margins down? 

Capital Expenditures

Watch out for a step-up of production capacity required as sales increase.

Is the Capex level sufficient to support the forecasted increase in sales?

Factor in the impact of industry trends on Capex (e.g., increased environmental expenditures, technology changes, etc.)

What Next?

Now that we have understood the detailed calculations of FCFF, Now in our next article, we will look at the projections of working capital. Till then, Happy Learning!

Recommended Articles

This has been a guide to the discounted cash flow analysis. Here are some articles that will help you get more details about the discounted cash flow analysis, so just go through the link.

Cash Flow Vs Net Income

Difference Between Cash Flow vs Net Income

Download Corporate Valuation, Investment Banking, Accounting, CFA Calculator & others


Net income, also known as net profit/ loss(bottom line item of the income statement) is the amount of net profits/ lossearned by an organization calculated as sum total of all revenue generated reduced by the cost of goods sold, selling and administrative expenses, amortization, depreciation, the interest cost, any other extraordinary item, taxes and any other expenses incurred.

Cash Flow

Cash flow is an important statement forming part of financial statements, which provides gross data for all cash inflows and outflows of an organisation which they either receives and pays for the ongoing business operations, for other investment sourcesor for financing transactions during a particular period. Financial statement of the company provides an investor and analysts with the helicopter view of all the transactions undertaken by the organisation. Among all financial statements, cash flow statement presents cash movement and is considered as most instinctive part of F/s. Cash Flow statement provides categorizes all transactions in three major classification –

Cash Flow from Operating Activity: It is the most important part of cashflow statement which presents cash flows related with all operating activities of a business. While presenting using indirect method, it starts with the net income of the business, makes adjustments for non-cash transactions like depreciation. After adjusting for non-cash transactions, it adds/ subtracts cash flow from related with various operating activities like cashflows related debtors, sales, vendors, purchases etc.These includes transactions like buying and selling of materials, inventory, etc, payment of expenses like salaries, wages etc. Positive cash flow from operating activities indicates good operating efficiency whereas a negative cashflow represents company poor operating performance.

Cash Flow from Investing Activity: This part represents cash flow from investment activities like cash expenditure on purchase or sale of assets like plant, property, equipment, furniture etc. in this cash flow investors take a look at the capital expenditure of the company. When the capital expenditure of the company increases the reduction in cash flow is observed and as a result, it symbolises that the organisation is making investments for future operations. Growing companies usually have high CAPEX cashflows.

Cash Flow from Financing Activity: This part of cashflow statement represents cash transactions in relation with capital funding i.e. business financing. It checks the flow of cash between the organisation and its shareholders (owners), debenture holders, and other financing organizations like banks. Cash flow from financing activity is useful for the investors and analyst in order to ascertain return (dividend, share buy-back) generating capacity for their individual investment. It helps banks to analyse risk of defaults and debt servicing capacity of organization.

Total Cash Flow = Cash Flow from Operating Activities + Investing Activities + Financing Activities

Net Income

Net Income is the amount of surplus revenue generated by an organization after recording/ paying off all expenses incurred during an accounting period. This figure is calculated in company’s Profit and Loss A/c as a difference of total earned revenue (received in cash or not) and expenses incurred(cost of goods sold, operating expenses, non-operating expenses, interest expenses, tax expenses and any other expenses) whether paid in cash or not. It is important for each stakeholder to gather and understand amount of net profit generated by entity. With the help of net income, net earning per share can be determined. It is also termed as bottom line as it is the last line item of the income statement

Head to Head Comparison between Cash Flow vs Net Income (Infographics)

Below are the top 6 differences between cash flow vs net income:

Key Differences between Cash Flow vs Net Income

The key differences between the cash flow vs net income are as follows:

Net profit and cash flow are an important financial metric of an organisation and are always confusing for the people who are new in finance and accounting. Net profit and cash flow are not the same tools and it is important to understand the differences between the two in order to make and process key financial decisions. Being an investor interpreting the difference between cash flow and net profit makes it easier to ascertain whether company is a good investment or not on the basis of its ability to remain solvent at the time of Crysis.

Cash flow is the sum of money that flows in and out of a business due to various business activities, while net income is the income generated as a result of surplus revenue over cost (vise versa).

Cash flow manipulation is a bit difficult as per US GAAP as cash balance needs to get tallied with bank/ physical cash while net profit can be manipulated by increasing revenue or decreasing revenue/ costs.

Cash flow is used to determine the company’s cash generation capacity, its enigmas concerning liquidity and to appraise the income generated by the accrual system of accounting. While net income is used to determine the profitability of the organisation for a given period and to ascertain the earnings for the shareholders.

Cash flow statement projects the sources of cash and where it is utilized. Whereas, net projects result of various business operations considering both cash/ non cash transactions

Cash flow is classified in three activities- operating, investing and financing on the other hand net profit comprises of mainly two major headings: – operating activity and non-operating activity.

Cash flow does not consider non-cash transactions in its calculation while net profits considers both cash/ non-cash transactions.

Cash Flow vs Net Income Comparison Table

Let us look at the comparison table of cash flow vs net income.

Basis Cash Flow Net Income

Components Deals with only cash items Deals with all revenue and all expenses whether cash or non-cash

Division Divided in three main categories:

Operating Activities

Investing activities

Financing Activities

Net Profits is single figure which can be said as derived from two major categories:

Operating activities

Non-Operating activities

Accounting Method Cash Accrual

Motive To determine the cash position and solvency, working capital, management efficiency To determine the profits and earning per share

Preparation With the help of balance sheet and income statement. With the help of Trial Balance and books of accounts ledgers

Manipulation Its bit difficult to manipulate Cashflows Net Profits can be manipulated in ease as compared to Cash flows


Both cash flows and net profits are important components of financial statement and serves different purposes. While the cash flows depict cash movements under different categories, net profits shows results of business operations. It is important for an organization to have adequate net profits as per the desired rate of return along with which it should also hold strong cash position. Weak cashflows may lead to liquidity crunch situation which in turn may affect business profitability. Therefore, both cashflows and net profits are interdependent and important for stakeholders.

Recommended Articles

This is a guide to Cash Flow vs Net Income. Here we also discuss the Cash Flow vs Net Income key differences with infographics and comparison table. You may also have a look at the following articles to learn more –

What Is Net Working Capital (Nwc) Flow?

The working capital flow occurs when there is a net increase or decrease in working capital due to a transaction. There are some transactions involved in a firm’s projects that change working capital. Whereas, there are other transactions that have no net effect on the working capital.

Usually, items from profit and loss accounts and business events that affect current and non-current accounts simultaneously effect the net working capital flow of a company. There are also current-only and non-current-only accounts the changes in which do not affect the net-working capital flow.

Increase and Decrease in Working Capital

Following are some examples to understand the concept of NWC −

Example 1 − Suppose a company issues shares in the capital market. The net effect of this will be in the company’s cash account which is a current (asset) account, and also in the share capital account which is a non-current account. The company gets cash in the transactions against the ownership claims of the investors. So, there is a net increase in working capital in this situation.

Example 2 − When the company buys machinery paying cash, there are two effects that are generated. The company’s cash or current (asset) account and the machinery account which is a non-current asset account are affected. The net effect is a decrease in the working capital inflow in such a condition.

No Change in NWC if Both Accounts Are Current Accounts

Suppose a company raises cash from debtors. It will increase the cash which is a current (asset) account and decrease the debtors which is also a current asset account. So, there is no net working capital flow change in the transactions. This will however change the composition of capital inflow patterns.

When the company pays the cash back to creditors, there are two items that are affected. The first is the cash or the current asset account which decreases, and the second is the creditor’s account which is a current liability account that also decreases due to the transactions. The net effect will have no net change in working capital although the composition of working capital changes.

No Change in NWC if Both Accounts Are Non-Current Accounts

In some cases, the working capital flow is not affected when the two accounts associated are non-current in nature.

For example, if a company pays for land it has bought by shares, there will be no net change in the working capital. In this case, both accounts are non-current in nature and there is, therefore, no net change in working capital in this case.

When a company converts loans and debentures into equity, no net change in working capital takes place.

In the Profit and Loss accounts, the cash receivables that are increased by revenue items, increase the working capital. On the other hand, the expense items that increase current liability or cash decrease working capital.

It must be noted that there are some items in the profit and loss accounts that are non-current in nature and so they do not alter working capital. For example, depreciation is non-current in nature. Depreciation decreases fixed assets but does not change the working capital.


It may be noted that for a change in net working capital one item in the transaction should be current and another account must be non-current.

Moreover, it may be summarized as follows −

For a change in the net working capital, there should be two accounts of opposite nature – current and non-current.

Net working capital remains unchanged when both accounts related are current accounts.

Net working capital also remains unchanged when the related two accounts are non-current.

7 Best Software To Track Sales And Improve Cash Flow

7 best software to track sales and improve cash flow




It’s easy to improve cash flow and keep your business profitable when using the appropriate software to track sales.

To make sure you achieve all your company’s goals, all this software has specific features for this.

We always recommend staying informed, so you should visit each software’s own page for more details.

In this article, we aim to cover the best software solutions for sales tracking on the market.

Stay on top of your finances with this simple and intuitive software! Moneyspire comprises easy-to-use features to help you keep track of your income, set budgets, and automate recurring financial transactions.

Manage all your accounts including bank, credit cards, cash, investment, other asset, and other liability

Import OFX, QFX, QIF, and CSV documents from your financial institutions

Supports all world currencies and enables transfer between foreign accounts

Take control of your money!

Sales tracking software tools help with forecasting, workforce scheduling, optimization, and determining pricing and strategy plans for the company.

While this may work with offices that get very low sales volumes, it is still not ideal. Using traditional ways of tracking sales can lead to poor performance.

Poor customer experiences, inefficient and ineffective use of sales staff and their time, fewer deals closed, and lower revenue with each deal are all the results of that.

Thankfully, technology has sorted out all these hassles by providing software to track sales. These manage, track, and guide each aspect of the sales process.

That’s possible thanks to a set of workflows that let the sales staff know where each prospect is at any time, and what steps they should take next.

Today, however, with better integrations and machine learning, some software to track sales can recommend the best follow up actions.

Even more, sales teams can get insights into the status and health of their department generally.

Some features you will find with popular sales tracking software include pipeline and cycle management, dashboards, and the next best actions.

There are also pipeline editors, web-to-lead features, social media integrations, collaboration tools, and basic content management functions.

Here are the top six software tools to track sales.

This software helps you keep track of all expenses to the very last dime. Customizable dashboards will keep you updated with all the costs in real time.

Easily get the full picture of sales, a specific deal or just taxes for the last trimester. By having detailed access to all types of data, you ensure that all goals and sales targets will be achieved in time.

The main key features of chúng tôi are:

Brilliant sales management and expense tracking

Centralized projects management with great workflows

Simple decision-making with real-time updated dashboards

Smart automation of repetitive processes and workflows

Integrations for great communication and collaboration

User-friendly interface with great capabilities

Save time by having detailed access to all expenses and boost efficiency when it comes to setting future targets and goals.

Even profitable companies can experience cash flow problems. Get ready to leave them all behind with the help of Bitrix24. Over 7.000.000 businesses have already done that!

Bitrix24 is actually a collaboration app with complete tools for sales management and communication.

It comes as a united platform for your tasks, contacts, and projects. What’s more interesting is that you can use the self-hosted version of Bitrix24 to run on your server.

This means that you’ll enjoy full control over data and source code access, along with countless integration and customization options.

Key features that Bitrix24 brings to the table:

Unified workspace to easily handle daily operations

CRM to quickly grow your sales

Efficiency guaranteed by millions of Bitrix24 CRM users worldwide

Convenient group chat

Intuitive e-learning tools

Useful helpdesk tools for small and mid-scale businesses

Pipedrive is a web-based software tool to track sales and manage your business pipeline by planning your sales activities and monitoring deals.

It is built with activity-based methodology and streamlines each sales action that goes into converting a lead or prospect into a successful sale.

Being cloud-based, the sales team and other staff involved can access it from any location and at any time, with any browser or mobile app dedicated to the same.

It also gives full visibility of the different pipelines, through its robust interface which has details of the progress stages per deal and actionable points.

One of its strong features is the activity and goal tool that lets sales teams track pending activities in the pipelines, and gives custom sales reports to monitor single or group level targets, analyze sales data and generate reports that can be used for decision making.

The mailing system is easily and seamlessly integrated with many email providers such as Outlook, Gmail, and Yahoo, among others.

So, your team can send and receive email messages from different accounts using their Pipedrive account.

It also integrates with other leading sales tracking and customer relationship management tools for easy transfer and sharing of contacts, as well as with MailChimp, Zapier, Trello, and Google Maps.

⇒ Get Pipedrive here

Zoho is a well-known brand in business software and this particular software to track sales is a cloud-based CRM tailored to suit small and medium-sized businesses.

Its interfaces include tools such as customer support, sales tracking and marketing automation, product configuration, reporting, and customer analytics.

With this software, you can use the multichannel support to connect with your customers and prospects via email, live chat, phone, or even social media.

It also has a gamification feature through which you can gamify the sales process while rewarding active and achieving sales staff who meet and/or surpass their targets.

The mobile app lets you access sales activities and information on customers from any iOS or Android devices, while its Blueprint feature helps automate sales processes through workflow and macros definition for regular tasks.

It integrates with existing software such as Google Docs, Microsoft Office and Sharepoint, with add-on apps for specialized business, collaboration, and productivity requirements.

⇒ Get Zoho CRM software here

It is available for free and suitable for any business type in various segments such as accounting, construction, and others, offering a real-time view of the whole sales funnel while tracking customer interactions automatically via email, social media or phone.

You can add up to a million contacts, with unlimited users and your free access has no time limit, however, the contacts added may be added to the Hubspot Marketing Hub if used together.

Once you start using it, you’ll also find some free versions available in the paid marketing and sales software so this tool goes over and above what a typical CRM does, so you can improve your sales processes.

It integrates with email providers such as Gmail, GSuite, and Outlook.

⇒ Get Hubspot CRM software here

Don’t know the best software for selling online and drawing customers’ attention? It’s time to change that!

This is another cloud-based sales and marketing solution that offers CRM, e-commerce, and marketing automation features in a single suite.

It helps small businesses in different industries deliver on their sales volumes and customer support experiences.

With this software to track sales, you can segment contacts, track customer interactions, send email messages, and run marketing campaigns based on email opens.

Even more, it lets you manage your e-commerce from inventory, payments, and purchases, plus setup online shopping carts while tracking activity from the online store.

It has reporting and analytics tools that help you analyze variables like emails and campaigns, sales, revenue projections, and others to track the return on investments of your sales activities.

You can also use it remotely as it is cloud-based, with your android or iOS smartphone or tablet, and it integrates with apps such as QuickBooks, Salesforce, Outlook, and Gmail.

⇒ Get InfusionSoft here

No less important, you should always rely on dedicated scheduling tools to keep your agenda organized.

Still experiencing issues?

Was this page helpful?


Start a conversation

What Is Qualitative Observation?

Qualitative observation is a research method where the characteristics or qualities of a phenomenon are described without using any quantitative measurements or data. Rather, the observation is based on the observer’s subjective interpretation of what they see, hear, smell, taste, or feel.

Example: Qualitative observationYou are interested in studying the behavior of children at a local after-school program using qualitative observation. You attend a few sessions, jotting down what you see. Observations like “the child seems hesitant,” “the child avoids making eye contact” or “the child prefers to play alone” describe the behavior of the children you are observing, but they do not involve numerical data or measurements.

Qualitative observations can be done using various methods, including direct observation, interviews, focus groups, or case studies. They can provide rich and detailed information about the behavior, attitudes, perceptions, and experiences of individuals or groups.

When to use qualitative observation

Qualitative observation is a type of observational study, often used in conjunction with other types of research through triangulation. It is often used in fields like social sciences, education, healthcare, marketing, and design. This type of study is especially well suited for gaining rich and detailed insights into complex and/or subjective phenomena.

A qualitative observation could be a good fit for your research if:

You are conducting exploratory research. If the goal of your research is to gain a better understanding of a phenomenon, object, or situation, qualitative observation is a good place to start.

When your research topic is complex, subjective, or cannot be examined numerically. Qualitative observation is often able to capture the complexity and subjectivity of human behavior, particularly for topics like emotions, attitudes, perceptions, or cultural practices. These may not be quantifiable or measurable through other methods.

You are relying on triangulation within your research approach. Qualitative observation is a solid addition to triangulation approaches, where multiple sources of data are used to validate and verify research findings.

TipIf you are more interested in numerical interpretations, then a quantitative observation may be a better fit for your research. Just remember that quantitative observations by definition describe phenomena using quantitative measurements or data.

Examples of qualitative observation

Qualitative observation is commonly used in marketing to study consumer behavior, preferences, and attitudes towards products or services.

Example: Qualitative observation in marketingYou are interested in consumer attitudes towards your company’s newest energy drink. You decide to conduct a focus group, where you act as the moderator and encourage participants to share their thoughts and opinions about the product.

During the focus group, you focus particularly on qualitative observations, taking note of the participants’ facial expressions, body language, word choice, and tone of voice.

These qualitative observations can help you draw inferences about a variety of themes, such as willingness to try new energy drinks. These can help inform your company’s marketing strategies and product development.

Qualitative observation is often also used in design fields, to better understand user needs, preferences, and behaviors. This can aid in the development of products and services that better meet user needs.

Example: Qualitative observation in UX designYou are interested in how users interact with the digital products and services offered by your company’s app.

You are particularly focused on any usability issues that could impact customer satisfaction. You run a series of testing sessions, focusing on reactions like facial expressions, body language, and verbal feedback.

Expressions such as frowning, squinting, or long pauses can indicate frustration or confusion. These can help you identify usability issues like confusing navigation or unclear labeling, as well as develop solutions to improve the user experience—informing your company’s design decisions over time.

Prevent plagiarism. Run a free check.

Try for free

Types of qualitative observations

There are several types of qualitative observation. Here are some of the most common types to help you choose the best one for your work.

Type Definition Example

Naturalistic observation The researcher observes how the participants respond to their environment in “real-life” settings but does not influence their behavior in any way Observing monkeys in a zoo enclosure

Participant observation Also occurs in “real-life” settings. Here, the researcher immerses themself in the participant group over a period of time Spending a few months in a hospital with patients suffering from a particular illness

Covert observation Hinges on the fact that the participants do not know they are being observed Observing interactions in public spaces, like bus rides or parks

Case study Investigates a person or group of people over time, with the idea that close investigation can later be generalized to other people or groups Observing a child or group of children over the course of their time in elementary school

Advantages of qualitative observations

Qualitative observations allow you to generate rich and nuanced qualitative data—aiding you in understanding a phenomenon or object and providing insights into the more complex and subjective aspects of human experience.

Qualitative observation is a flexible research method that can be adjusted based on research goals and timeline. It also has the potential to be quite non-intrusive, allowing observation of participants in their natural settings without disrupting or influencing their behavior.

Qualitative observation is often used in combination with other research methods, such as interviews or surveys, to provide a more complete picture of the phenomenon being studied. This triangulation can help improve the reliability and validity of the research findings.

Like many observational studies, qualitative observations are at high risk for many research biases, particularly on the side of the researcher in the case of observer bias. These biases can also bleed over to the participant size, in the case of the Hawthorne effect or social desirability bias.

Qualitative observations are typically based on a small sample size, which makes them very unlikely to be representative of the larger population. This greatly limits the generalizability of the findings if used as a standalone method, and the data collection process can be long and onerous.

Like other human subject research, qualitative observation has its share of ethical considerations to keep in mind and protect, particularly informed consent, privacy, and confidentiality.

Other interesting articles

If you want to know more about statistics, methodology, or research bias, make sure to check out some of our other articles with explanations and examples.

Frequently asked questions Cite this Scribbr article

George, T. Retrieved July 19, 2023,

Cite this article

Update the detailed information about What Is Discounted Cash Flow on the website. We hope the article's content will meet your needs, and we will regularly update the information to provide you with the fastest and most accurate information. Have a great day!