Definition
Sensitivity analysis systematically varies one or two key inputs (WACC, growth rate, margin, revenue) to show how the output (enterprise value, NPV, IRR) changes. One-way tables vary a single input; two-way tables (data tables) vary two inputs simultaneously. This reveals which assumptions most impact the valuation and where analytical effort should focus.
lightbulb Example
DCF base case values a company at $50/share. Sensitivity table shows: WACC 8% → $62, WACC 10% → $50, WACC 12% → $41. Terminal growth 2% → $45, 3% → $50, 4% → $58. Value is most sensitive to WACC.
verified_user Key Points
- Identifies critical assumptions driving value
- One-way tables vary single inputs
- Two-way data tables show interaction effects
- Essential complement to any DCF analysis