### 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.

Dynamic scoring: A back-of-the-envelope guide
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onlinelibrary.wiley.com [PDF]
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www.jstor.org [PDF]
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… 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 …

#### Why would someone use this type of estimation?

Someone might use this type of estimation to determine whether further research and more detailed calculations are warranted. For example, an investor might look at the annual report for a company and do some quick math to get its price to earnings ratio. If it's low enough to imply value, the investor can do proper calculations which might include factoring in weighted average shares outstanding for the year. If the quick estimate gave high PE ratio, time could be saved by not doing these additional calculations.

#### What is Back-Of-The-Envelope Calculation?

Back-Of-The-Envelope Calculation is a quick method of calculation.

#### Is there any difference between doing calculations by hand and on a computer?

There is no difference between doing calculations by hand and on a computer. Both methods are equally effective.

#### What is a back-of-the-envelope calculation?

A back-of-the-envelope calculation is an informal mathematical computation often performed on a scrap of paper such as an envelope.

#### What do you need to make your own back of the envelope calculator?

You need paper, pencil, eraser, ruler, calculator and knowledge about how to use them effectively. This will help you create your own calculator from scratch without spending money for one. It will also help you understand how calculators work internally so that if something goes wrong with yours, you know what needs fixing or replacing immediately rather than waiting for someone else to fix it for you or taking it to be fixed at great expense when it could have been prevented easily if only you had known what was wrong with it in the first place!

#### What does the term "quick" mean in this context?

The term "quick" means that calculations are done quickly.

#### What does "ballpark figure" mean?

It means that you're getting close to what you're looking for without being exact about it yet.

#### How can you calculate using back of an envelope?

You can use back of an envelope to perform calculations by hand or on a computer.