The Scenario Analysis is also called the What-If Analysis. It enables an investor to answer questions such as, "What if the growth in earnings over the next 5 years is only half what it was over the past years? What will be my future return in this case?"
Or, "What if the PE ratio drops to its lowest level for the past 3 years?"
The Scenario Analysis is the last stop before making a purchase. After you have checked out a company and you understand its advantages over its competitors and you are happy with its financials using the Quick Analysis, then it is time to see if it is selling at a profitable price.
We are looking for those companies that still give a reasonable return even under a substantial margin of safety. Then, if things turn out a little rosier, we end up with very healthy profit.
You can access a Viewlet on the Scenario Analysis through the Member Resource Page.
