How To Perform A Sensitivity Analysis In Excel

Excel Sensitivity Analysis Tutorial

Understanding Sensitivity Analysis

Sensitivity analysis, or data tables in Excel, is a dynamic tool that allows variation of assumptions to observe different outcomes. This method is essential for financial modeling, helping to predict the range of possibilities despite the uncertainties of investing.

Setting Up Sensitivity Tables

To commence a sensitivity analysis, place your input variables and outcome on the same Excel sheet. Ensure the row and column inputs influence the output. Hard-code numbers in your table to maintain model integrity.

Using What-If Analysis

Through the Data tab, access What-If Analysis to create your sensitivity tables. Prepare for the table creation by setting 'Workbook Calculation' to 'Automatic except for data tables' within Options or Preferences, enhancing Excel's performance.

Creating the Table

Once What-If Analysis is accessed, outline your table ensuring the top left cell directly references the output variable. Link inputs appropriately to output, and confirm that no cell links back to the model, preserving accuracy post-creation.

Finalizing the Table

After building your table, refrain from altering individual cells. This precaution maintains the table's integrity and represents a critical rule in sensitivity analysis within Excel.

Conclusion

Knowing how to efficiently perform sensitivity analysis in Excel is crucial for intermediate and complex financial models. It provides a window into a company's valuation across different scenarios and is a tool that adeptly handles the probabilistic nature of investing.

Excel vs Sourcetable: Streamlined Data Management

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