Corporate Financial Management Techniques: Sensitivity, Scenario, Break-even and Simulation Analysis

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Corporate financial management

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Table of Contents
Introduction......................................................................................................................................3
a. Sensitivity analysis.......................................................................................................................3
b. Scenario analysis..........................................................................................................................5
c. Break-even analysis.....................................................................................................................5
d. Simulation analysis......................................................................................................................6
Conclusion.......................................................................................................................................7
References........................................................................................................................................8

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Introduction
The business requires the use of various techniques y the help of which there will be an
undertaking of the best decisions. There is the need to have an understanding of the tools so that
they can be used in an effective manner and advantages can be attained from them. The four
techniques which will be used in this are breakeven analysis, simulation, sensitivity analysis, and
scenario analysis. With the help of them it will be possible to make effective decisions and the
performance of the business will be improved. The proper discussion of all the techniques is
carried in this report by which appropriate understanding will be gained.
a. Sensitivity analysis
In all the businesses there are certain investments which are required to be made and for that,
there are several options which are available. It is required that they all shall be analyzed in an
effective manner by which the best among them can be selected. This will be done with the help
of available approaches such as capital budgeting. It is the process in which the evaluation of the
available investments is made and then the one which will provide the company with the best
returns is taken into consideration (Herman and Usher, 2017). For this there are various
techniques which are available and can be applied. They will be used and by the help of that net
return which will be available from the investment will be evaluated. One of such method which
will be used is sensitivity analysis. This is the technique in which there are various variables
which are involved and the impact of all will be tested in an adequate manner. The variable in
the business changes with time and requirements and it is necessary that their impact on the
business shall be evaluated appropriately.
For the determination of the impact which will be made with the change there will be the
calculation of the net present value of all the aspects which are available. This is done because
NPV is the main result which is obtained by any project after considering all the expenses and
other elements (Baio and Dawid, 2015). For the undertaking of the sensitivity analysis there will
be determination of the net present value at various changes which will be made in the net
present value. All of the results will then be compared and the deviation which has taken place
from the original elements will be calculated. The change in the net present value together with