On this page is a Graham Number Calculator. The calculator works with your inputs to estimate a stock's fundamental value with Benjamin Graham's Formula based on earnings and book value per share.
Graham Number Calculator for Stock Value Screening
Note: You can also adjust the weights assigned to the book value and earnings from the respective 1.5 and 15 suggested by Benjamin Graham.
Using The Graham Number for Stock Valuation
Graham's number was suggested by Benjamin Graham to estimate the fundamental value of a stock.
At its most basic level, the Graham Number starts with the Book Value Per Share and the Earnings Per Share of a compan,y then multiplies by magic numbers.
Taking the square root of that intermediate value then suggests a 'reasonable valuation'. In the original formulation, EPS uses a multiplier of 15 while BVPS is assigned 1.5 and the resulting number is the Fair Value of the stock.
Read: the output from the equation is the highest price where a stock is reasonably valued according to Graham.
Graham Number Formula
The formula for the Graham Number is:
\sqrt{15*Earnings\ Per\ Share*1.5*Book\ Value\ Per\ Share}\ (or)\\~\\
\sqrt{22.5*Earnings\ Per\ Share*Book\ Value\ Per\ Share}So, a company worth $50 in Book Value Per Share which earned $1.50 per share last year would be worth:
- $47.08
\sqrt{15*1.5*1.5*50}=\\~\\\sqrt{1687.5 }=\$47.08If the stock was trading at $100 a share?
The Graham Number formula would suggest a pass on that stock.
The Graham Number is a quick screen during your your stock due diligence. Historically, it has performed reasonably well (when there are cheap enough valuations that enough stocks make the cut, of course). However, the fateful warning applies: sometimes stocks are cheap for a reason.
Add it to your toolbelt but don't solely rely on it.
What's next?
Try our other stock valuation tools:
You can find all our finance calculators here.
