F i n a n c i a l A s p e c t P a g e | 205

SENSITIVITY ANALYSIS
Managers need to observe the financial standing of the companys
cash flows. This is because of the uncertainties inherent in every business
that the managers necessarily have to determine in order to uncover these
adverse situations. Moreover, managers may also set various alternatives
to assume different circumstances to analyze cash flows, this are what we
call- sensitivity analysis.
Sensitivity analysis is a tool used to consider different scenarios that
is dissimilar to what is previously considered to measure the volatility of
financial performance and position of the business with respect to sales
and costs. Considering the rapid changes of prices of the commodities and
goods due to inflation and other factors, sensitivity analysis is a useful
means in determining the possible effect of these changes in a certain
variable from what was previously assumed.
Considering the different scenarios given below, a forecast of the
effect in the companys financial performance in relation to the companys
financial performance, return on equity, payback period, and break even
point are presented in the next page:

F i n a n c i a l A s p e c t P a g e | 206
Table 20
Assumptions for Sensitivity Analysis
Particulars

Scenario 1
Inc.

Sales
Direct Materials
Direct Labor
Indirect Labor
Indirect Materials
Office Supplies
Expense
Production Tools
Cleaning Supplies
Rent Expense
Utilities ExpenseElectricity
Utilities ExpenseWater ExpenseUtilities
Telephone
Utilities Expense-Fuel
Professional Expense
Advertising Expense
Repairs and
Maintenance
Promoters fee

Dec.
5%

Scenario 2
Inc.

Dec.

Scenario 3
Inc.

2.5%
7%

2.5%
7%

8%
2.5%
2.5%

8%
2.5%
2.5%

2.5%
2.5%
2.5%
2.7%

2.5%
2.5%
2.5%
2.7%

2.7%
0.2%

2.7%
0.2%

4.9%
2.5%
2.5%
3.6%

4.9%
2.5%
2.5%
3.6%

2.5%

2.5%

Sources: Consumer Price Index in the Philippines: 2015

Dec.
5%