Sensitivity analysis aids in investment decision making by providing a way to predict the outcome of an investment based on changes in certain variables. It allows investors to understand how different values of an independent variable impact a particular dependent variable under a given set of assumptions. This process can also highlight where the investment might be most vulnerable to changes in certain variables. In the context of the provided content, sensitivity analysis can help compare the efficiency of capital use between companies by showing how changes in variables like Return on Invested Capital (ROIC), reinvestment rate, and valuation multiples could affect net income and equity value forecasts.
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