Definition
Sensitivity analysis shows how outputs change when key inputs vary within a reasonable range. In valuation, it's used to test how fragile a DCF is to discount rate and terminal assumptions.
How to use it
- Use sensitivity grids to avoid false precision from single-point estimates.
- Pick ranges that reflect uncertainty (not just tiny deltas).
Common mistakes
- Picking ranges that are too narrow and concluding the result is certain.
- Changing many inputs at once without tracking what drove the change.
Measured as
Measure Sensitivity Analysis with the same date, unit basis, and accounting or policy definitions used in the rest of your model.
Misused when
- Picking ranges that are too narrow and concluding the result is certain.
- Changing many inputs at once without tracking what drove the change.
Operator takeaway
- Use sensitivity grids to avoid false precision from single-point estimates.
- Pick ranges that reflect uncertainty (not just tiny deltas).
- Tie Sensitivity Analysis to the same balance-sheet date, scenario, and decision memo you are using elsewhere in the model.
- Document which claims, costs, or adjustments your team includes before comparing numbers across forecasts, covenants, or valuation work.
Next decision
- Quantify the impact with DCF Sensitivity Calculator if you need to turn the definition into an operating assumption.
- Read DCF sensitivity guide: WACC, terminal growth, valuation if the decision depends on interpretation, policy, or trade-offs beyond the raw formula.
Where to use this on MetricKit
Calculators
- DCF Sensitivity Calculator: Estimate how enterprise value changes with discount rate and terminal growth assumptions (simple 3x3 sensitivity).
- LTV Sensitivity Calculator: See how gross profit LTV changes as churn and gross margin vary (simple 3x3 sensitivity).
- CAC Payback Sensitivity Calculator: See how CAC payback months change as ARPA and gross margin vary (simple 3x3 sensitivity).
- ARR Valuation Sensitivity Calculator: Estimate valuation sensitivity to ARR and revenue multiple assumptions (simple 3x3 grid).
Guides
- DCF sensitivity guide: WACC, terminal growth, valuation: How to run a DCF sensitivity table, choose defensible WACC and terminal growth ranges, and judge whether valuation is robust.
- LTV sensitivity: how churn and margin change LTV: A practical guide to LTV sensitivity: vary churn and gross margin to see how gross profit LTV changes under realistic scenarios.
- CAC payback sensitivity: ARPA * margin scenarios (months to recover CAC): A practical guide to CAC payback sensitivity: vary ARPA and gross margin to see how months to recover CAC changes under realistic scenarios.
- ARR valuation sensitivity: a simple multiple grid for scenarios: Use a 3*3 grid to see how valuation changes when ARR and the market multiple move, and avoid false precision from a single multiple.
- Valuation modeling hub: WACC, DCF, multiples, and equity value: A practical hub for valuation modeling: estimate a discount rate (WACC), run a simple DCF with sensitivity analysis, and translate enterprise value to equity value.