here is the answer i find on sensitivity analysis in bpp. is it correct. i could not see the logic in that: In sensitivity analysis, a lower percentage indicates a greater sensitivity. This means that a smaller percentage change in the input variable would result in a significant change in the output or decision. The lower the percentage, the more critical the factor is, and the more sensitive it is to changes. Therefore, a lower percentage suggests a higher level of sensitivity.
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sensitivity analysis
2y ago#1The sensitivity shows the movement to breakeven
So the smaller it is then the more sensitive that cashflow is.
For example if a company forecasts 25k profit
But is concerned about the sensitivity of say revenue 80,000
and variable costs of say 40,000
and fixed costs of 15,000
25,000/ 80,000 = 31% because if revenue drops by 31% assuming every else remains the same
then revenue falls to 55,000 - VC 40k - FC 15k no profit is made
25,000/40,000 = 62% these are costs so this is the maximum increase Rev 80k - VC 65k - FC 15k no
profit again
25,000/15,000 = 166%
and so on
So revenue is the most sensitive
I understand now. Thank you so much for your help Sir
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