Sensitivity Analysis

A sensitivity table (also called a data table) shows how one output (e.g., implied share price, IRR, or accretion/dilution) changes across a range of two input variables. In Excel, this is built using the Data Table function (What-If Analysis). You select the two most impactful assumptions, create a grid of possible values, and the table populates with the corresponding output for each combination. The result is a matrix showing best-case, base-case, and worst-case scenarios at a glance.

DCF: WACC vs. terminal growth rate (or exit multiple). These drive 70–80% of the valuation range. LBO: entry multiple vs. exit multiple, or EBITDA growth rate vs. leverage. M&A: purchase price (or premium) vs. cost synergies. Revenue model: revenue growth rate vs. operating margin. Choosing the right variables is key — pick the two inputs with the greatest impact on the output and the most uncertainty. Don't waste a sensitivity table on inputs you're highly confident about.

In pitch books, sensitivity tables are formatted with conditional coloring: green for favorable outcomes (higher value, higher IRR), red for unfavorable outcomes, and yellow for the base case. The base-case cell is typically bolded or highlighted. Present the table with clear axis labels and a brief narrative explaining the range. For example: 'At our base case of 10% WACC and 2.5% terminal growth, implied share price is $28. The range is $22–$36 across reasonable assumptions.'

Sensitivity analysis changes 1–2 variables independently. Scenario analysis changes multiple variables simultaneously to represent coherent 'stories' — e.g., a recession scenario might combine lower revenue growth, compressed margins, and higher WACC. Both are complementary: sensitivity tables show individual variable impact, while scenario analysis shows the combined effect of correlated changes. Management cases, banker cases, and street cases are forms of scenario analysis used in M&A processes.