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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.
The 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 profitBut is concerned about the sensitivity of say revenue 80,000
and variable costs of say 40,000
and fixed costs of 15,00025,000/ 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 made25,000/40,000 = 62% these are costs so this is the maximum increase Rev 80k – VC 65k – FC 15k no
profit again25,000/15,000 = 166%
and so on
So revenue is the most sensitive
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