Module VI· Model Auditing & DebuggingIntermediate
Question

What is a stress test, and how do you perform it?

Answer

A stress test pushes assumptions to extreme but plausible levels to see whether the model behaves correctly. Set revenue growth negative, margins compressed, capex high, working capital adverse, or interest rates up. Check that formulas do not break, debt sweeps stop at zero, covenants flag correctly, and valuation / returns remain logical.