What information can be derived from a sensitivity matrix in DCF?

A sensitivity matrix in a discounted cash flow (DCF) analysis is a valuable tool that illustrates how variations in key assumptions or inputs affect the valuation of an asset or company. By displaying the relationship between different input variables, such as revenue growth rates, discount rates, and terminal values, the sensitivity matrix helps analysts understand which factors have the most significant impact on the overall valuation outcome.

For instance, if slight changes in the forecasted growth rate yield substantial differences in the calculated net present value (NPV), this indicates that the valuation is highly sensitive to that particular input. This insight can be crucial for decision-making, as it highlights the areas that require closer scrutiny and potential adjustments, as well as the inherent risks associated with the investment.

The other options do not pertain directly to the purpose of the sensitivity matrix. Historical performance metrics are typically analyzed through different financial reports, while estimates of future interest rates are external economic forecasts rather than derived metrics from a sensitivity analysis. Information on capital structure components relates more to the financing aspects of a company rather than to sensitivity analysis, which is primarily concerned with variable impacts on valuation.