From the course: Excel: Learning Cash Flow Forecasting
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Conducting sensitivity analysis of key variables in Excel
From the course: Excel: Learning Cash Flow Forecasting
Conducting sensitivity analysis of key variables in Excel
- [Instructor] There's a problem at Barrington Chocolate. It turns out that there is a disruption to the supply chain for Dutch cocoa powder. The average cost that Barrington uses for its forecast is $5 per pound, but it's possible that this rate could go up as high as $8 per pound for the foreseeable future. Leslie, the owner of Barrington, is worried that this 60% cost increase will erode her margins, so much so that the new customer opportunity with the sports team will completely sink her business. Her margins are already lower than she wants them to be. Well, the question is, does Leslie have a reason to panic? Well, we don't yet know, but that's why we run sensitivities on cash flow models. We want to sensitize key variables, in this case, the unit price of cocoa powder, and see how the range of possibilities impacts the outputs we care about, most notably, profit and cash flow. In our cost expense forecast, you'll recall that in line number seven, we have raw materials…
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