> For the complete documentation index, see [llms.txt](https://help.modelreef.io/llms.txt). Markdown versions of documentation pages are available by appending `.md` to page URLs; this page is available as [Markdown](https://help.modelreef.io/how-tos/valuation/build-a-valuation-sensitivity-model.md).

# Build a Valuation Sensitivity Model

{% hint style="info" %}
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.
    {% endhint %}

## 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.

{% stepper %}
{% step %}

### 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).
  {% endstep %}

{% step %}

### Step 2: Create sensitivity models

Based on your base model, follow these steps:

{% stepper %}
{% step %}
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`.
  {% endstep %}

{% step %}
In each copy:

* Adjust only the intended assumption set.
* Keep all other inputs unchanged.

This ensures each model represents a specific sensitivity point.
{% endstep %}
{% endstepper %}
{% endstep %}

{% step %}

### 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.
{% endstep %}

{% step %}

### 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.
  {% endstep %}

{% step %}

### 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.
{% endstep %}

{% step %}

### 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.
{% endstep %}
{% endstepper %}

### 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

<details>

<summary>Sensitivity results are confusing or inconsistent</summary>

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

</details>

<details>

<summary>Everything seems highly sensitive</summary>

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

</details>

### Related guides

* [Loan/Interest Sensitivity Planning](/use-cases/real-estate-and-property/loan-interest-sensitivity-planning.md)
* [Model Level Permissions](/help/permissions-and-collaboration/model-level-permissions.md)
* [Model Structure Principles](/help/building-your-model/model-structure-principles.md)
* [Timing Syntax](/syntax/timing-syntax.md)