Sensitivity Analysis
Multi-Variable Impact Assessment on Enterprise Value
Sensitivity Analysis shows how the concluded Enterprise Value changes as key assumptions vary — replacing the false certainty of a point estimate with a structured, transparent view of valuation risk. Equitest runs multi-variable sensitivity matrices across WACC, growth rates, margins, and exit multiples, heat-mapped and published in the report.
What Is Sensitivity Analysis in Valuation?
A DCF model's output is only as reliable as its input assumptions — and those assumptions carry inherent uncertainty. Sensitivity Analysis quantifies this uncertainty by systematically varying two key inputs at a time across a plausible range and recomputing Enterprise Value for each combination, producing a matrix of outcomes.
The result is a two-dimensional heat map: the analyst can immediately see not just the base-case value but how that value changes as WACC rises and the terminal growth rate falls, or as the EBITDA margin compresses while the exit multiple stays constant. This is the analytical tool that separates a professional valuation from an amateur spreadsheet — it forces the analyst to confront and disclose how much of the valuation depends on specific assumption choices.
Professional valuation standards — IVS, USPAP, and the AICPA's valuation guidance — either require or strongly recommend sensitivity analysis as part of any income approach engagement. Equitest automates the full matrix computation and includes it as a standard component of every DCF-based report.
The WACC × Terminal Growth Rate Matrix
Each cell shows Enterprise Value ($M) for a given combination. The gold cell is the base case. Indicative example — actual values from your DCF.
| WACC \ g | 1.0% | 1.5% | 2.0% | 2.5% | 3.0% |
|---|---|---|---|---|---|
| 10.0% | $24.1M | $25.8M | $27.8M | $30.2M | $33.1M |
| 11.0% | $20.4M | $21.7M | $23.2M | $24.9M | $27.0M |
| 12.0% | $17.3M | $18.4M | $19.6M ● | $21.0M | $22.6M |
| 13.0% | $14.8M | $15.7M | $16.7M | $17.8M | $19.1M |
| 14.0% | $12.7M | $13.4M | $14.3M | $15.2M | $16.2M |
● = Base case. Green = above base. Yellow/red = below base.
How Equitest Runs Sensitivity Analysis
Chapter 26 runs fully automated, multi-matrix sensitivity analysis across four standard variable pairs — plus custom pair selection — with heat-mapped output published in the report.
WACC × Terminal Growth Rate
The canonical DCF sensitivity matrix — a 5×5 grid varying WACC across ±200 bps and terminal growth rate across ±150 bps from their base values. This is the most widely used and disclosed sensitivity table in professional valuation, covering the two assumptions that together determine 70–80% of total Enterprise Value in a typical DCF.
Revenue CAGR × EBITDA Margin
The second standard matrix captures operational assumption risk: how does Enterprise Value change as the explicit-period revenue growth rate and EBITDA margin vary across their plausible ranges? This matrix is particularly valuable for early-stage companies where both growth and margins are highly uncertain.
Exit Multiple × Revenue Growth
The third matrix varies the terminal year exit EBITDA multiple against the revenue growth assumption — connecting market-based terminal value uncertainty to growth uncertainty. Useful for M&A and PE analysis where the exit multiple range is constrained by current market conditions.
Any Two Variables — Analyst-Selected
Beyond the three standard matrices, the analyst can select any two model inputs as the row and column variables — tax rate, CapEx intensity, working capital requirement, or any other DCF driver — and Equitest generates the full sensitivity matrix automatically. Each custom matrix is included in the Chapter 26 report section with labeled axes and a heat-mapped color scale.
Color-Coded Value Range Visualization
Every sensitivity matrix is rendered with a diverging color scale: red for values significantly below the base case, yellow for moderate downside, green for upside, with the base-case cell highlighted in gold. The color scale makes the value range and its distribution immediately legible — an investor can see at a glance how much of the matrix falls above or below an acceptable return threshold.
Sensitivity Results Feed the Tornado Chart
The diagonal sensitivity of each variable pair — how much Enterprise Value changes per unit change in each variable — feeds directly into the Tornado Chart in Chapter 27. This connection is automatic: the Tornado Chart ranks variables by their one-at-a-time sensitivity contribution, using the same ranges defined in the Chapter 26 sensitivity setup. No separate data entry needed.
