Sensitivity Analysis Assignment Help

Financial Statement Analysis - Sensitivity Analysis

Sensitivity Analysis

Sensitivity analysis also refers as SA is the study of  the uncertainty in the output of a model in terms numerical or otherwise and  can be rendered out in portions to different sources of uncertainty in the model input. A related practice is uncertainty analysis  which concentrates rather on quantifying uncertainty in model output. In ideal case,  sensitivity  and uncertainty analysis should be run in tandem manner.

In more general terms uncertainty and sensitivity analysis look into the robustness of a study when the study let in some form of statistical modeling. Sensitivity analysis can be practicable to compute for a range of purposes, which includes:

ñ Back up decision making or the development of recommendations for decision makers. For illustration testing the robustness of a result.

ñ Raising communication from modelers to decision makers. For illustration, by making recommendations more credible, understandable, compelling or persuasive

ñ Increased understanding or quantification of the system. For illustration, understanding relationships among input and output variables.

ñ Development of model. For illustration searching for errors in the model.

Let us see an example,  in any budgeting procedure there are always variables that are uncertain. Future tax rates, inflation rates, interest rates,operating expenses, headcount and other variables may not be known with great preciseness. 

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