Financial Metrics & Modelling
Sensitivity Analysis for Vessel Investments
Summary
Sensitivity analysis shows how changes in selected assumptions affect NPV, debt coverage, equity return or vessel value.
Why this matters in ship finance
It identifies assumptions to which an investment is most exposed, informing due diligence and covenant design.
The concept
One-way and two-way sensitivities vary inputs around a common coherent baseline; the local response can be non-linear when minimum speed, port constraints, penalties or covenants bind.
How it is used in practice
Construct sensitivity matrices for freight, operating days, bunker prices, residual values, discount rates and carbon cost. Include a threshold for project NPV zero or covenant breach.
Illustrative worked example
Illustration: show the change in NPV when a 10% freight reduction is applied to an otherwise unchanged base case; the figure is a local sensitivity, not a likelihood.
Practical issues
Independent one-variable changes understate joint downside dependence. A tornado diagram is a ranking tool, not a probability estimate.
How ShipFinance.ai uses this concept
ShipFinance.ai can structure this topic around a transparent, auditable record of formula inputs, time basis, scenario assumptions and debt/equity cash-flow reconciliation. A useful decision output is a base case beside a clearly labelled alternative case, with input sources, effective dates and the assumptions responsible for any change in financing capacity.
Key takeaways
- Sensitivity analysis shows how changes in selected assumptions affect NPV, debt coverage, equity return or vessel value.
- Construct sensitivity matrices for freight, operating days, bunker prices, residual values, discount rates and carbon cost.
- Independent one-variable changes understate joint downside dependence.