Order of magnitude check
Brainteasers & GuesstimatesTesting an answer against a quantity you already know independently, to catch errors of scale rather than errors of detail.
Also written: order of magnitude sanity check
An order of magnitude check compares the number you have produced with something you know from outside the calculation: revenue, the debt quantum, headcount, the equity cheque a buyer of that size would write. You are not checking whether the answer is precise, you are checking whether it is the right size.
The important discipline is that the check must not reuse the route that produced the number. Recomputing the same multiplication reproduces the same error, which is why candidates who check their work still present wrong figures with confidence. A genuine check comes at the answer from a different direction.
Ratios are usually better anchors than absolute figures, because a ratio carries its own plausibility. A 14% EBITDA margin for an industrial services business is unremarkable. A 3.5% margin for the same business is a signal, and a 60% margin would be a different signal.
In a case this is also worth doing out loud. Naming the anchor, saying that a €140m EBITDA on €1,000m of revenue is a 14% margin and looks sane, shows the interviewer that a wrong number would not have survived, which is most of what they are trying to find out.
Worked example
You compute an enterprise value of €300m for a business you have been told carries €400m of net debt.
That implies negative equity, meaning the lenders own the business. For a distressed asset that is a real answer. For the healthy business just described to you, it is a signal that the arithmetic has failed, and it took no extra information to see it.