Sensitivity analysis (different values of an independent variable affect a particular dependent variable under a given set of assumptions)

Once we project the sales volume with the help of the sustainable growth rate of the company it is very important to calculate the operating profit to know the economic profit under different conditions.

Sensitivity analysis helps in analyzing the different scenarios of the operating Profit with the help of Sales Volume and Average Selling Price (A.S.P).

In this image we can see that the operating profit of FY-19 is 3,049 this is the current operating profit Scenario with a sales volume of 8,26,098 at an ASP of 1,06,582.

The company has just entered into the negative case scenario of the operating profit.

From here there are three types of trends in the projection between the periods of FY19 to FY 21 with the projected Average Selling Price and Sales Volume.

Positive Scenario:-

This is the case when the company is operating in the best scenario when its operating profit is in Green when the sales are 947802 units at the ASP of 1,10,323 with the operating profit of 3829.

Neutral Scenario:-

This is the case when the company is operating on a Neutral operating profit. This Scenario starts when the sales of the Company are 885079 units and the ASP is 1,04,450 with a Profit of 3090.

Negative Scenario:-

This is the case when the Sales Volumes are falling and thus the operating profit. The company has just entered into its negative scenario as highlighted in the image and as mentioned above.

Solution:-

The company should meet its target operating profit to achieve those targets the company should try to increase its Sales Volume to 885079 units decrease the ASP to 1,04,450 and enter into the Neutral Scenario with an EBITDA of 3090