Scenario Analysis Flashcards
1
Q
What does scenario analysis represent?
A
It is a method through which:
- we estimate the impact of certain variables
- we estimate the probabilities of each scenario to occur
2
Q
What are the steps to be taken when performing a scenario analysis?
A
- Identify 2-3 major influences of the variable which you want to analyse (V)
- Estimate V values for every working scenarios
- Estimate the probability associated to every working scenario
- Compute V’ and E(V)
- Compute the standard deviation of V
3
Q
What is financial planning and forcasting?
A
It represents the ability to anticipate various events with an economic impact on the firm’s financials.
