DEFINITION of 'What-If Calculation'
Calculations for testing a financial model using different assumptions and scenarios. What-if`calculations enable the forecaster to check the variance in end results for a financial model using various hypothetical levels for inputs such as interest rates and exchange rates. These calculations are generally performed with spreadsheet software. What-if calculations can also be referred to as sensitivity analysis or stress testing.
BREAKING DOWN 'What-If Calculation'
In a discounted cash flow model used to assess the viability of a project, changes in the discount rate can lead to wide ranges in the net present value of the project. The key benefit of what-if calculations in this case is that they can test the viability of the project under various scenarios. What-if calculations are similar to a sensitivity analysis, and should not be confused with the "IF" function in excel.