Back-of-the-envelope

Factual definition

A quick, simplified calculation done with rough numbers to sanity-check an idea before building a detailed model.

Back-of-the-envelope in practice

Hypothetical: before opening a spreadsheet for a prospective acquisition, an analyst makes a rough check of whether the asking price is in a plausible range. A two-minute calculation can identify a reason to stop or justify building a detailed model.

How Shayne Fitz-Coy uses Back-of-the-envelope

Most of the time it’s quick rules of thumb, because you’re looking to eliminate lots and lots of bad deals. The deeper you get into diligence, the more you build out.