Build a Valuation Sensitivity Model

Before you start

• A base model with a working valuation (FCFF and/or FCFE).

• Clear identification of the drivers you care about, for example:

  • WACC.

  • Equity discount rate.

  • Revenue growth.

  • EBITDA margins.

  • Capex intensity.

  • Terminal multiples or growth.

Build a Valuation Sensitivity Model

This guide explains how to assess how sensitive your valuation is to key assumptions by using multiple models and structured variations in Model Reef.

What you will build

• A set of models that vary one or more key assumptions.

• A summary comparison of valuation outcomes across these models.

• A narrative that explains which assumptions matter most.

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Step 1: Identify sensitivity dimensions

Decide which assumptions you will test. For example:

• Discount rate: low, base, high.

• Terminal multiple: low, base, high.

• Revenue growth: low, base, high.

• Margin: conservative, base, aggressive.

You can combine these into:

• Single variable sensitivity (one dimension at a time).

• Scenario sensitivity (combinations).

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Step 2: Create sensitivity models

Based on your base model, follow these steps:

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Duplicate the base into a series of models, for example:

• Model - Base - Valuation.

• Model - Low Growth.

• Model - High Growth.

• Model - Low Multiple.

• Model - High Multiple.

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In each copy:

• Adjust only the intended assumption set.

• Keep all other inputs unchanged.

This ensures each model represents a specific sensitivity point.

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Step 3: Adjust assumptions per model

For each sensitivity model:

• Growth sensitivities:

  • Adjust revenue growth drivers in the Data Library.

• Margin sensitivities:

  • Adjust COGS and Opex ratios or margin targets.

• Discount rate sensitivities:

  • Adjust WACC and/or equity discount rate.

• Terminal value sensitivities:

  • Adjust terminal multiples or long run growth.

Make limited, clearly defined changes in each model.

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Step 4: Capture valuation results

For each model, record:

• Project NPV (FCFF).

• Equity NPV (FCFE).

• Project IRR and Equity IRR.

• Money Multiple.

• Payback.

• Any key multiples (for example EV to EBITDA) if relevant.

You can do this in:

• A separate summary document.

• A dashboard built in one of the models that references external values if you maintain a manual mapping.

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Step 5: Visualise sensitivity

To make sensitivity intuitive:

• Build simple graphs outside or inside your documentation:

  • NPV versus WACC.

  • NPV versus terminal multiple.

  • NPV versus growth.

• Highlight:

  • At which points NPV becomes negative.

  • The range of values in which your investment case remains attractive.

Even simple visualisation helps communicate risk.

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Step 6: Use sensitivity for decision making

Use results to answer:

• Which assumption drives most of the valuation.

• What combination of pessimistic assumptions still supports a break even or acceptable return.

• Whether the valuation case is robust or fragile.

This supports more informed decisions about pricing, risk mitigation and negotiation.

Check your work

• Each sensitivity model differs only in the intended assumptions.

• Recorded valuation metrics are accurate and reproducible.

• The sensitivity story is clear:

  • You can explain what moves the valuation and why.

Troubleshooting

Sensitivity results are confusing or inconsistent

Recheck that models have not inadvertently changed multiple assumptions at once when you intended to vary only one.

Everything seems highly sensitive

This may be the reality for a risky or early stage business. Consider extending the forecast horizon or revisiting core strategy assumptions.

Related guides

• Loan/Interest Sensitivity Planning

• Model Level Permissions

• Model Structure Principles

• Timing Syntax