Many of the variables determining the income (or future income) are subject to some type of likelihood rather than known certainty.  If the value of the total sales changes in a given period, so will the total income for the same period.  With Sensitivity Analysis you will determine, what are the exact amount of changes in the income, when one of the variables such as sales, variable costs (or it’s components), or fixed costs (or it’s components) are changed.

Sensitivity Analysis table starts with the most probable or “tentative” values as a base, and then a series of “If - Then” questions.  It’s usually done by changing one variable and keeping the remainder constant.  This analysis can be used to test the sensitivity level of income, to variable changes, when you change one variable and keep the rest constant.

In some cases you might want to consider changes in more than one variable.  In such cases you will be performing Scenario Analysis rather than Sensitivity Analysis.  For instance if the total sales is decreased and the variable costs are also lowered (proportion to the number of units sold), what will happen to the level of income?  Or if you change all the variables in a frame of a scenario, then what will be the level of income?

If you choose to use the table for Scenario Analysis, you could assign percentage changes to more than one or all of the variables.  This will enable a comparison of the income values and other values to the “intended” values.

The “intended” data in this table are loaded from the Cash Flow and Income Statement.  The Operating Income is calculated by excluding the Taxes and Net Interest in the Total Costs.  The Net Interest is the difference between the Total Interest Paid and the Total Interest Earned.