Stress Testing
Short definition
Stress testing measures the effect of low-probability but coherent shocks (FX, rates, demand, collections) on cash, covenants and debt service. It is a tail tool, separate from budget variance and VaR.
Detailed explanation
Reverse stress asks which shock breaks the covenant. Multi-factor stress keeps FX+rates+DSO breaking together; one-variable sensitivity misses that.
The bank pack imposes its own stress definition; management stress need not match it, but the gap must be explained. Liquidity stress need not end on the same day as P&L stress.
Why it matters for the CFO
Debt capacity and the cash buffer are read from stressed DSCR and the 13-week, not from base-case EBITDA.
How to read it
Shock size is not universal; history, covenants and the business model set it. “FX +20%” does not have the same cash effect in every sector.
Related calculators
Güven Sayılgan’s writing on this topic
When Do Firms in Türkiye Experience Cash Squeezes Most Often?
Cash squeezes are not driven by tax dates alone; interest rates, banks’ appetite to lend, the exchange rate, inventory costs, collection periods, and sales temp
3 min read
Read → FinansWhat Do Cash Flow Available for Debt Service (CFADS) and the Debt Service Coverage Ratio (DSCR) Mean?
CFADS shows how much cash from operations can be allocated to interest and principal; DSCR shows how far that cash covers current debt service. Debt capacity is
9 min read
Read → FinansHow Should Firms Be Financed in a High-Interest Environment? 15 Core Principles
In a high-interest environment, financing decisions must be made with greater care. Fifteen principles for assessing cost, maturity, currency, and cash-flow eff
3 min read
Read →Related terms
What to learn next
Definitions are educational. They are not investment, credit or tax advice.