Question

What is the reason to do breakeven, sensitivity, scenario, and probabilistic analysis?

Answer 1

Every firm prepares break even analysis inorder to ascertain the value of returns or turnover.Firm conducts break even analysis to analyze the point at which cost of production can be recovered.By this,firm will get an image about receiving profit revenues,losses,neither loss nor profit point.With this information,firm can set their targets to gain profits and maximum revenue.For this reason,breakeven analysis is done.Sensitivity analysis is done to know the factors which effect output.Usually when few factors like labour force,resources,etc are altered,then it effects the overall output.It even provides information regarding benefits and losses of implementing new plan or policy.So,for this reason,sensitivity analysis is done.Scenario analysis forecasts the future status of firm.This analysis is made to attract capital from shareholders,debenture holders,etc.This analysis presents complete estimated picture regarding returns rates on shares,etc.For this purpose,scenario analysis is done.Probalistic analysis uses previous information of firm to estimate upcoming status of business activities,profits and losses.By considering previous information of profits and losses,upcoming or expected status is estimated and derived.This analysis alerts firm about threats and challenges,so that alternative plan or action can help firm to overcome such threats.For this reason,probalistic analysis is done.

Hence these are the reasons for conducting breakeven,sensitivity,scenario and probalistic analysis.