Which input can significantly influence the valuation in a sensitivity matrix?

In a sensitivity matrix, changes in key inputs, such as growth assumptions, play a crucial role in influencing valuation outcomes. Growth assumptions are foundational to financial forecasts, impacting revenue projections, cost structures, and overall profitability. When varying growth rates are applied in the sensitivity analysis, they demonstrate how fluctuations in expected growth can affect the valuation of a project or company significantly.

For instance, if a company's expected growth in revenue is increased, this can lead to higher projected cash flows, which directly result in a higher net present value (NPV). Conversely, a decrease in growth rates would lower projected future cash flows, thus reducing the valuation. This sensitivity analysis allows analysts to understand the potential range of valuations under different scenarios, making it a powerful tool in investment decision-making and risk assessment.

In contrast, while specific interest rate forecasts, historical performance metrics, and regulatory environments do influence valuations, they typically do so with less direct impact on the core growth financials when compared to changes in growth assumptions. Growth projections are often the most fluctuating and subject to various economic conditions, making them a key driver in sensitivity analyses.