Graham Number Calculator

How to use the calculator

1. Type a ticker and pick the stock. The calculator fills in the price, earnings per share and book value per share, worked out from the stock’s P/E and P/B ratios on Quotelinks.
2. Or enter EPS, book value per share and the price yourself, for example from a company’s annual report.
3. Open Graham growth formula to value the stock with an expected growth rate and the current AAA corporate bond yield.

The Graham number

Benjamin Graham, the father of value investing, suggested in The Intelligent Investor that a defensive investor should not pay more than 15 times earnings or 1.5 times book value, and that the product of the two ratios should not exceed 22.5. The Graham number is the highest price that still meets that test:

Graham number = √(22.5 × EPS × book value per share)

Example: a company with EPS of $6 and book value of $30 per share has a Graham number of √(22.5 × 6 × 30) = $63.64. At a share price of $100, it trades well above Graham’s limit.

The Graham growth formula

For growing companies, Graham later proposed a second formula (revised in 1974):

value = EPS × (8.5 + 2g) × 4.4 / Y

Here g is the expected yearly earnings growth in percent over the next 7–10 years, 8.5 is the P/E he thought fair for a company with no growth, 4.4 was the AAA corporate bond yield of his time and Y is today’s AAA yield. With EPS of $6, 5% growth and Y = 4.4, the value is 6 × 18.5 = $111. The calculator fills in the 5-year EPS growth where available; check that it is a sensible long-term rate.

Margin of safety

Graham’s central idea was to buy only when the price is well below the estimated value, leaving room for mistakes. The margin of safety is (value − price) / value: a stock at $45 with a Graham number of $60 has a 25% margin.

Limits

• Needs profits and positive equity. It can’t value loss-making companies or those with negative book value (often after large buybacks).
• Penalises asset-light businesses. Software and brand-driven companies have little book value, so they rarely pass, even when they are good investments.
• A starting point. Use it as a screen alongside debt, earnings stability and dividends, as Graham did. The stock screener filters by P/E and P/B.

For dividend payers, compare the result with the dividend discount model, which values a stock from its dividends instead of earnings and book value.

Frequently asked questions

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