Scenario Analysis and Sensitivity
Common Uses of Scenarios
(a) Allow for sensitivities analysis.
(b) Able to better answer “What If” questions.
(c) Gain better confidence in projections.
(d) Varying levels of operating performance.
(e) Range of synergy realization.
(f) Multiple target analysis in M&A situations.
(g) Stress test for loan structuring and covenants.
Sources for Scenarios
• Management forecasts
• Internal budget or forecasts
• “Outlook section” in the MD&A
• Research expectations
• Based on historical performance
For example, sales historically in the 10–15 percent growth range 10 percent bear case; 15 percent bull case
Using Choose Function in Excel
Example:
(a) Index # must be an integer
(b) Greater flexibility ...
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