Glossarytaught in M3.09, M0.03
Sanity check
Also called reasonableness check, smell test.
A rough independent calculation used to test whether a detailed answer is plausible.
A model forecasting ₹9,450 crore of revenue in a ₹63,000 crore market is claiming 15% share. So ask yourself whether the company can plausibly hold 15%. That's a different and better question than checking the spreadsheet.
Checks work best when they come from a different direction than the model. Compare implied volumes to capacity and implied headcount to revenue per employee. Implied capital spending can be set against the asset base.
If the answer fails the check, the model is wrong even when the arithmetic is right.
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