Ace the AFP Exam 2026 – Boost Your Financial Wizardry!

Sensitivity analysis is a crucial tool in financial forecasting that assesses how different variables can influence financial outcomes. By changing the key assumptions within a financial model—such as sales volume, cost of goods sold, or market growth rates—analysts can observe how sensitive the results are to these variations. This allows decision-makers to understand which assumptions have the most significant impact on profitability or other financial metrics and assess risk more effectively.

This approach is essential for developing strategies under varying scenarios and helps in understanding potential future performance under uncertainty. Sensitivity analysis enables organizations to prepare for a range of possible outcomes, making it a valuable component of robust financial planning and decision-making.

In contrast, projecting revenue growth is a narrower focus that doesn't capture the broader insights offered by sensitivity analysis. Evaluating investment strategies typically involves different analytical frameworks, and measuring historical performance assesses past results rather than exploring effects of changing assumptions on future forecasts.