What is 'Back-Of-The-Envelope Calculation'

An informal mathematical computation, often performed on a scrap of paper such as an envelope. A back-of-the-envelope calculation uses estimated and/or rounded numbers to quickly develop a ballpark figure. The result should be more accurate than a guess, but will be less accurate than a formal calculation performed using precise numbers and a spreadsheet or calculator.

Explaining 'Back-Of-The-Envelope Calculation'

Back-of-the-envelope calculations might be used to determine whether further research and more detailed calculations are warranted. For example, an investor might look at a company's annual report and do a back-of-the-envelope calculation to get its price-to-earnings ratio. If it is low enough to imply value, the investor can do a proper calculation which might include factoring in the weighted average shares outstanding for the year. If the quick estimate gave a high P/E ratio, time could be saved.

Further Reading

Household balance sheet channels of monetary policy: A back of the envelope calculation for the Euro Area
www.sciencedirect.com [PDF]
… 2. These formulas permit some illuminating back-of-the-envelope calculations … suggests a (constant-consumption) compensated elasticity of labor supply around 3. 6 If we raise σ to 3 in our calculation, the revenue … The only equation that comes from household behavior is Eq …

The cost of basic income: Back-of-the-envelope calculations
www.degruyter.com [PDF]
… 2. These formulas permit some illuminating back-of-the-envelope calculations … suggests a (constant-consumption) compensated elasticity of labor supply around 3. 6 If we raise σ to 3 in our calculation, the revenue … The only equation that comes from household behavior is Eq …

The impact of food inflation on urban poverty and its monetary cost: some back‐of‐the‐envelope calculations
onlinelibrary.wiley.com [PDF]
… 2. These formulas permit some illuminating back-of-the-envelope calculations … suggests a (constant-consumption) compensated elasticity of labor supply around 3. 6 If we raise σ to 3 in our calculation, the revenue … The only equation that comes from household behavior is Eq …

'Back of the Envelope': Pragmatic Planning for Sustainable Rural Community Development
www.tandfonline.com [PDF]
… 2. These formulas permit some illuminating back-of-the-envelope calculations … suggests a (constant-consumption) compensated elasticity of labor supply around 3. 6 If we raise σ to 3 in our calculation, the revenue … The only equation that comes from household behavior is Eq …

The economics of traffic congestion
www.jstor.org [PDF]
… 2. These formulas permit some illuminating back-of-the-envelope calculations … suggests a (constant-consumption) compensated elasticity of labor supply around 3. 6 If we raise σ to 3 in our calculation, the revenue … The only equation that comes from household behavior is Eq …

Grazers: the overlooked threat to the sustained production of future algal biofuels
www.tandfonline.com [PDF]
… 2. These formulas permit some illuminating back-of-the-envelope calculations … suggests a (constant-consumption) compensated elasticity of labor supply around 3. 6 If we raise σ to 3 in our calculation, the revenue … The only equation that comes from household behavior is Eq …

What's wrong with the back of the envelope? A call for simple (and timely) benefit–cost analysis
onlinelibrary.wiley.com [PDF]
… 2. These formulas permit some illuminating back-of-the-envelope calculations … suggests a (constant-consumption) compensated elasticity of labor supply around 3. 6 If we raise σ to 3 in our calculation, the revenue … The only equation that comes from household behavior is Eq …