Calculate Sensitivity Table

8/21/2019 Calculate Sensitivity Table

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Introducing Sensitivity Analysis and What IFTables in Excel

What is this exercise?

This is a set of worksheet that build up the procedure for developing a 1 waysensitivity analysis or a 1 way What IF table. This means that we will bevarying 1 variable and noting the effect of its variation on one (or more) outputresults.

What is the Formulation?The formulation is a simple Income Statement. It shows the gross salesreduced by a few costs, then proceeds to calculate some profits and margins.The formulation aims at producing a budget using estimates for such figuresas Sales Growth, the growth in Cost of Goods Sold and the growth inOperational Costs. We will start with the Sales Growth and examine its effectson the Profit Margin.

By Akram Najjarwww.lockergnome.com/nexus/akramnajjar

Click Buttons to


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go to a specific Worksheet . . .


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Step 1: Setup the Formulation

Factors used in Estimatingthe 2007 BudgetSales Growth 4.00%

Growth in Cost of Goods 5.00%Increase in Operating Expenses 6.00%

2006 2007

Actual Budgeted

Gross Sales 45,000 46,800Less Cost of Goods Sold (20,000) (21,000)Less Discounts (2,500) (2,600)Less Commissions (3,000) (3,120)

Gross Profit 19,500 20,080Less Operating Expenses (15,000) (15,900)

Net Profit 4,500 4,180

Net Profit Margin 10.00% 8.93%

Three values used to estimatethe 2007 Budget

The Output Cell computed from 2007 estimateswhich are based on the 3 input cells.This is the cell whose sensitivity to 1 inputwe will be are analyzing.

Cell C10 shows the Gross Sales+ the Sales Growth using Cell B4

Cell C11 shows the Cost of Gooof 2006 + the Growth in COGS usi

Discountsin C12 are not estimatThe ratio of Discounts to Gross Sfor 2006 and applied to the projec2007 to get the 2007 Discounts.Same logic for Commissions in c

Cell C15 shows the Operating Exto which we add the increase in Ousing Cell B6.


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of 2006

s Sold (COGS)ing Cell B5

ed using a factor.les is computeded Gross Sales in

ell C13.

penses of 2006perating Costs


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Step 2: Select the Variables



2006 2007

Actual Budgeted





Let us analyze the Sensitivityfor changes in Sales Growth(Cell B4) - we can do the same

for the other 2 factors later (B5 and B6)

This is our OUTPUT Cell. We will analyzeits sensitivity to changes in the INPUT cell B4

Cell C10 depends on the Cell B4,

Cell C14 computes Gross ProfitSales. Therefore, it depends on Cdepends on Cell B4

Cell C17 depends on C16 (Net Pr

depends on Gross Saleswhich dSales Growthin B4

Color Codes:

Green Cells: used for input or changing cells. Goas in Traffic Lights.

Yellow Cells: used for values given in theformulation as constants. Usually, these valueswon't change. All other cells are computed fromthese and the input cells.

Blue Cells: are the output cells, our objective, and

hence the color of the sky!


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the Sales Growth.

sing Grossell C10 which

ofit) which

epends on the


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Step 3: Setup the Analysis Table



2006 2007 8.93%

Actual Budgeted 2.00%Gross Sales 45,000 46,800 2.50%

Less Cost of Goods Sold (20,000) (21,000) 3.00%Less Discounts (2,500) (2,600) 3.50%Less Commissions (3,000) (3,120) 4.00%

Gross Profit 19,500 20,080 4.50%Less Operating Expenses (15,000) (15,900) 5.00%

Net Profit 4,500 4,180 5.50%

Net Profit Margin 10.00% 8.93% 6.00%6.50%7.00%7.50%8.00%8.50%

9.00%9.50%

10.00%10.50%11.00%11.50%12.00%

Se

SttwStexrovavainc

yoSt(CStSaStcolThtosaStan


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tting Up the Table

p 1: Columns: Create a table that hascolumns.

p 2: Rows: We need a top row (to beplained later). We also need as manys as the range over which our input

riable varies. In our case, we chose tory it from 2% to 12% with 0.5rements, ie, 21 rows. So now you know

u need a 22 x 2 table.p 3:Keep the top left hand cell blank.

ell E8).p 4:Spread the required values of the

les Growth in cells E9 to E29.p 5: In cell F9, the top of our results

lumn, enter =C17 (with the equal sign).is copies the output cell C17 into ourright hand cell F9. (They will have the

me value).p 6:color code the table as shown

d format the cells as you wish.


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Step 4: Run the Sensitivity Analysis



2006 2007 8.93%

Actual Budgeted 2.00% 7.39%Gross Sales 45,000 46,800 2.50% 7.78%

Less Cost of Goods Sold (20,000) (21,000) 3.00% 8.17%Less Discounts (2,500) (2,600) 3.50% 8.55%Less Commissions (3,000) (3,120) 4.00% 8.93%

Gross Profit 19,500 20,080 4.50% 9.31%Less Operating Expenses (15,000) (15,900) 5.00% 9.68%Net Profit 4,500 4,180 5.50% 10.05%Net Profit Margin 10.00% 8.93% 6.00% 10.42%

6.50% 10.78%7.00% 11.14%7.50% 11.50%8.00% 11.85%8.50% 12.20%9.00% 12.55%9.50% 12.89%

10.00% 13.23%10.50% 13.57%11.00% 13.90%11.50% 14.24%12.00% 14.56%

Ru

StStStgeStfora)onl

b)weloc)wecliabitsSt


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n the Sensitivity Analysis

p 1: Select the table E8:F29p 2: Select the Data menup 3: Select the Table entry in the menu. You will

t a dialog box like the one shown on the left!p 4: Excel does not provide a good explanationthis box.Since we are running a 1 variable analysis, wely need to define one cell.

Since our input variable is spread over a column,need a value in the "Column input cell" field, theer one (highlighted in green).

Since the value our analysis depends on cell B4,click on the "Column input cell" field and thenk in Cell B4. Excel writes $B$4. (Excel needs an

solute value here, but we don't care. It will do it onown).p 5:Press OK and you have the result.


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Step 5: Try it from Scratch



2006 2007

Actual Budgeted






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Step 6: Multiple Output



2006 2007 8.93% 4,180

Actual Budgeted 2.00% 7.39% 3,390Gross Sales 45,000 46,800 2.50% 7.78% 3,587

Less Cost of Goods Sold (20,000) (21,000) 3.00% 8.17% 3,785Less Discounts (2,500) (2,600) 3.50% 8.55% 3,983Less Commissions (3,000) (3,120) 4.00% 8.93% 4,180

Gross Profit 19,500 20,080 4.50% 9.31% 4,378Less Operating Expenses (15,000) (15,900) 5.00% 9.68% 4,575Net Profit 4,500 4,180 5.50% 10.05% 4,773Net Profit Margin 10.00% 8.93% 6.00% 10.42% 4,970

6.50% 10.78% 5,1687.00% 11.14% 5,3657.50% 11.50% 5,5638.00% 11.85% 5,7608.50% 12.20% 5,9589.00% 12.55% 6,1559.50% 12.89% 6,353

10.00% 13.23% 6,55010.50% 13.57% 6,74811.00% 13.90% 6,94511.50% 14.24% 7,14312.00% 14.56% 7,340


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20,080

19,290

19,488

19,685

19,883

20,080

20,278

20,475

20,673

20,870

21,068

21,265

21,463

21,660

21,858

22,055

22,253

22,450

22,648

22,845

23,043

23,240

More than 1 Output Variable

We tried a 1 way What IF analysis in the previousexample. But we only had 1 output variable.

Although we have 1 input only, we can haveseveral output variables.

Step 1: Add as many columns as you have outputvariables. (Here we have a total of 3 outputvariables).

Step 2: At the top of each column, point to thevariable you wish to analyze the sensitivity of. Wehave in F8 to earlier value = C17.In G8, we have =C16, the Net Profit.In H8, we have =C14, the Gross Profit.

Now apply the Data/Table procedure in exactly thesame way but highlight the whole table (E8:H29).


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Step 7: One Variable - Conclusion



2006 2007 8.93% 4,180

Actual Budgeted 2.00% 7.39% 3,390Gross Sales 45,000 46,800 2.50% 7.78% 3,587

Less Cost of Goods Sold (20,000) (21,000) 3.00% 8.17% 3,785Less Discounts (2,500) (2,600) 3.50% 8.55% 3,983Less Commissions (3,000) (3,120) 4.00% 8.93% 4,180

Gross Profit 19,500 20,080 4.50% 9.31% 4,378Less Operating Expenses (15,000) (15,900) 5.00% 9.68% 4,575Net Profit 4,500 4,180 5.50% 10.05% 4,773Net Profit Margin 10.00% 8.93% 6.00% 10.42% 4,970

6.50% 10.78% 5,1687.00% 11.14% 5,3657.50% 11.50% 5,5638.00% 11.85% 5,7608.50% 12.20% 5,9589.00% 12.55% 6,1559.50% 12.89% 6,353

10.00% 13.23% 6,55010.50% 13.57% 6,74811.00% 13.90% 6,94511.50% 14.24% 7,14312.00% 14.56% 7,340

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

0.00% 2.00%

SalesGrowth


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20,080

19,290

19,488

19,685

19,883

20,080

20,278

20,475

20,673

20,870

21,068

21,265

21,463

21,660

21,858

22,055

22,253

22,450

22,648

22,845

23,043

23,240

Summary: What IF with 1 Input Variable

1) We can only have 1 input variable. We tried allworkouts using Sales Growth (B4). We could havetried the other parameters: B5 or B6. Do that.

2) We tried one output then 3 outputs. You canhave as many outputs as you want. Enjoy it while itlasts because you cannot have except one outputwhen applying the 2 way What IF analysis (next

worksheet).

3) Plot your table to check Sensitivity visually. Youwill see that in all three cases, there is an almostlinear depends of the output on the Sales Growth.(See graph below).

.00% 6.00% 8.00% 10.00% 12.00% 14.00%

Net Profit

et Profit vs Sales Growth


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Step 8: Two Way Analysis



2006 2007 8.93% 2.00% 2.50%

Actual Budgeted 2.00% 8.69% 8.47%Gross Sales 45,000 46,800 2.50% 9.08% 8.86%

Less Cost of Goods Sold (20,000) (21,000) 3.00% 9.46% 9.24%Less Discounts (2,500) (2,600) 3.50% 9.84% 9.62%Less Commissions (3,000) (3,120) 4.00% 10.21% 10.00%

Gross Profit 19,500 20,080 4.50% 10.58% 10.37%Less Operating Expenses (15,000) (15,900) 5.00% 10.95% 10.74%Net Profit 4,500 4,180 5.50% 11.32% 11.11%Net Profit Margin 10.00% 8.93% 6.00% 11.68% 11.47%

6.50% 12.03% 11.83%7.00% 12.39% 12.18%7.50% 12.74% 12.53%8.00% 13.09% 12.88%8.50% 13.43% 13.23%9.00% 13.77% 13.57%9.50% 14.11% 13.91%

10.00% 14.44% 14.24%10.50% 14.78% 14.58%11.00% 15.11% 14.90%11.50% 15.43% 15.23%12.00% 15.75% 15.56%

Run the Sensitiv

Step 1: in the topenter =C17. Nowway analysis: becStep 2: Decide ospread the first in

range from 2% toStep 3: Decide onCost of Goods SoStep 4: Select theStep 5: Select theStep 6: Select theshown on the left!Step 7:a) Since we are rb) Our first input vinput cell" field, thcell" field and thec) Our second inp

cell", the upper fieStep 8:Press OK


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3.00% 3.50% 4.00% 4.50% 5.00% 5.50% 6.00%

8.26% 8.04% 7.82% 7.60% 7.39% 7.17% 6.95%

8.64% 8.43% 8.21% 7.99% 7.78% 7.56% 7.34%

9.03% 8.81% 8.60% 8.38% 8.17% 7.95% 7.73%

9.41% 9.19% 8.98% 8.77% 8.55% 8.34% 8.12%

9.79% 9.57% 9.36% 9.15% 8.93% 8.72% 8.50%

10.16% 9.95% 9.73% 9.52% 9.31% 9.10% 8.88%

10.53% 10.32% 10.11% 9.89% 9.68% 9.47% 9.26%

10.90% 10.68% 10.47% 10.26% 10.05% 9.84% 9.63%

11.26% 11.05% 10.84% 10.63% 10.42% 10.21% 10.00%

11.62% 11.41% 11.20% 10.99% 10.78% 10.57% 10.37%

11.97% 11.77% 11.56% 11.35% 11.14% 10.93% 10.73%

12.33% 12.12% 11.91% 11.71% 11.50% 11.29% 11.09%

12.67% 12.47% 12.26% 12.06% 11.85% 11.65% 11.44%

13.02% 12.82% 12.61% 12.41% 12.20% 12.00% 11.79%

13.36% 13.16% 12.96% 12.75% 12.55% 12.34% 12.14%

13.70% 13.50% 13.30% 13.09% 12.89% 12.69% 12.49%

14.04% 13.84% 13.64% 13.43% 13.23% 13.03% 12.83%

14.37% 14.17% 13.97% 13.77% 13.57% 13.37% 13.17%

14.70% 14.50% 14.30% 14.10% 13.90% 13.70% 13.50%

15.03% 14.83% 14.63% 14.43% 14.24% 14.04% 13.84%

15.36% 15.16% 14.96% 14.76% 14.56% 14.37% 14.17%

ity Analysis

left hand corner, place the value of the output cell as a formula oryou see why we cannot have more than 1 output variable in the 2ause we only have 1 corner cell!

the variable for the column. It is the Sales Growth as before. So,ut variable

12%.the variable for the row (orange). We will use the Growth in the

ld. Spread the values from F8 to N8 as 2% to 6%.table E8:N29Data menuTable entry in the menu. You will get a dialog box like the one

nning a 2 variable analysis, we need to define two cells.ariable is spread over a column, we need a value in the "Columne lower one (highlighted in green ). We click on the "Column input

click in Cell B4. Excel writes $B$4.ut variable is spread over a row, we need a value in the "Row input

ld (highlighted in orange in the captured image on the left side).and you have the result.


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Step 9: Analysis of Sensitivity

Years >>> 1 2 3 4 5 Total

Revenues and Benefits (IN) 5,000 5,000 5,000 5,000 20,000 0.0500

Costs (OUT) -17,000 -17,000 0.0525

Net Cashflow -17,000 5,000 5,000 5,000 5,000 0.0550Yearly Present Value 15,455 -4,132 -3,757 -3,415 -3,105 0.0575

Calculated NPV 1,046 0.0600

Discount Rate 0.1000 0.0625

Excel's IRR Function 0.0683 0.0650

0.0675

0.0700

0.0725

0.0750

0.0775

0.0800

0.0825

0.0850

0.0875

0.0900

0.0925

0.0950

0.0975

0.1000

0.1025

0.1050

0.1075

0.1100

-1,000

-500

0

500

1,000

1,500

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25


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1,046

-695

-596

-498-402

-307

-213

-121

-30

60

148

236

322

407

491

573

655

735

815

893

970

1,046

1,121

1,195

1,268

1,340

Sensitivity of Net Present Value to the Discounting RateThe Net Present Value is computed as follows:1) Place the revenues or benefits in yearly amounts in row 42) Place the costs or cash out in yearly amounts in row 53) Find the net cash flow for each year in row 64) Find the present value of each amount in row 6 and place it inrow 7. (Use Excel's PV formula and use the discounting rate in B9(in the formulation = 10%).5) Now sum the cells B7:F7 to get the NPV in cell B8.

This NPV depends on the discounting rate in B9.

Objective of Sensitivity Analysis: to examine how the NPVvaries if the discounting rate varies from 5% to 11%. We use the 1variable What IF analysis as shown.

The graph shows that NPV is increasing, starting negative andcrossing the 0 value (for NPV) at around 7%.

The Internal Rate of Return (IRR) of a project is defined as the

discounting rate at which NPV is zero.

Cell B10 shows Excel's automatic computation of IRR and it is thesame as what the sensitivity analysis shows.

Why then use Sensitivity Analysis if Excel has an IRR function?1) Because visually, we can see when the project is feasible andwhen it is not (below IRR)2) Because sometimes Excel fails to produce the IRR3) Because sometimes we can have a project with more than 1cross which Excel cannot show.

Documents

Calculate Sensitivity Table