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.

RELATED TERMS
  1. Financial Modeling

    The process by which a firm constructs a financial representation ...
  2. Sensitivity Analysis

    Sensitivity analysis is a technique used to determine how different ...
  3. Model Risk

    A type of risk that occurs when a financial model used to measure ...
  4. Efficiency Variance

    The difference between the theoretical amount of inputs required ...
  5. Profitability Index

    An index that attempts to identify the relationship between the ...
  6. Robust

    A characteristic describing a model's, test's or system's ability ...
Related Articles
  1. Investing

    Financial Models You Can Create With Excel

    The relatively modest amount of time it takes to build these models can pay for itself by leading you to better investment decisions.
  2. Investing

    Style Matters In Financial Modeling

    If you're looking to get a job as an analyst, you'll need to know how to work it.
  3. Small Business

    Calculating Net Present Value at Different Points Using Excel

    Calculating the net present value (NPV) of your investment projects using Excel.
  4. Investing

    Understanding Financial Models

    A financial model is a representation of some aspects of a firm or given security. It uses historical numbers to create calculations that inform financial recommendations or predict future financial ...
  5. Retirement

    The 3 Best Retirement Calculators For 2016

    Find out the top three online retirement calculators to use in 2016 for determining how much you need to save to provide for sustainable income.
  6. Investing

    Top 3 Pitfalls Of Discounted Cash Flow Analysis

    The DCF method can be difficult to apply to real-life valuations. Find out where it comes up short.
  7. Investing

    Explaining Variance

    Variance is a measurement of the spread between numbers in a data set.
  8. Retirement

    The 3 Best Social Security Calculators For 2016

    Find out how to analyze your Social Security benefits under different retirement scenarios using multifunctional online Social Security calculators.
  9. Personal Finance

    DCF Vs. Comparables: Which One To Use

    DCF and Comparables models are widely used in equity valuation. We explain the pros and cons of each method.
  10. Small Business

    Calculating (Small) Company Credit Risk

    Determining creditworthiness of smaller and medium-sized corporations isn't as easy as for larger companies, but these tips can help.
RELATED FAQS
  1. What are some examples of ways that sensitivity analysis can be used?

    Understand the concept of sensitivity analysis and learn about the wide variety of disciplines to which it can be applied. Read Answer >>
  2. What is the difference between financial forecasting and financial modelling?

    Understand the difference between financial forecasting and financial modeling, and learn why a company should conduct both ... Read Answer >>
  3. How is the ability to perform Activities of Daily Living (ADL) measured?

    Find out how to apply sensitivity analysis to your investment decisions, why sensitivity analysis might be useful and what ... Read Answer >>
  4. How do you use a financial calculator to determine present value?

    Learn how to utilize a financial calculator to calculate present value. Understand the necessary data, why it is important ... Read Answer >>
  5. What is the formula for calculating net present value (NPV) in Excel?

    Understand how net present value is used to estimate the anticipated profitability of projects or investments and how to ... Read Answer >>
  6. How do you use DCF for real estate valuation?

    Learn how discounted cash flow analysis is used for real estate valuation and the various factors that go into calculating ... Read Answer >>
Hot Definitions
  1. Magna Cum Laude

    An academic level of distinction used by educational institutions to signify an academic degree which was received "with ...
  2. Cover Letter

    A written document submitted with a job application explaining the applicant's credentials and interest in the open position. ...
  3. 403(b) Plan

    A retirement plan for certain employees of public schools, tax-exempt organizations and certain ministers. Generally, retirement ...
  4. Master Of Business Administration - MBA

    A graduate degree achieved at a university or college that provides theoretical and practical training to help graduates ...
  5. Liquidity Event

    An event that allows initial investors in a company to cash out some or all of their ownership shares and is considered an ...
  6. Job Market

    A market in which employers search for employees and employees search for jobs. The job market is not a physical place as ...
Trading Center