How to use the Graham Number calculator
Graham Number gives a ceiling price from earnings and assets. Graham formula values a stock from earnings and expected growth.
- Earnings per share. Use diluted EPS for the last 12 months. Graham preferred an average of at least three years, which smooths out a single good or bad year.
- Book value per share. Shareholders’ equity divided by shares outstanding, from the latest balance sheet.
- Expected growth (formula tab): the annual earnings growth you expect over the next seven to ten years, not just next year.
- AAA corporate bond yield (formula tab): the current yield on Moody’s Aaa-rated corporate bonds, published by the Federal Reserve and financial data sites.
- Share price (optional) adds the margin of safety.
The formulas
Revised formula: V = EPS × (8.5 + 2g) × 4.4 ÷ Yg is expected annual growth in percent (enter 6 for 6%), 8.5 is the P/E Graham assigned to a company with no growth, 4.4 is the high-grade bond yield of his day and Y is the current AAA corporate bond yield in percent.
Both come from Benjamin Graham’s The Intelligent Investor. The growth formula first appeared without the bond-yield term; the version with 4.4 ÷ Y is the revision usually dated to 1974.
A worked example
Company C earns $4 a share and has book value of $32 a share. Graham Number = √(22.5 × $4 × $32) = $53.67. At a price of $45, the margin of safety is 16.1%, and P/E × P/B is 15.8, comfortably under 22.5.
With 6% expected growth and a 5% AAA yield, the original formula gives $82.00 and the revised formula gives $72.16, an implied P/E of 18.0. The current price of $45 only assumes growth of about 2.1% a year.
A stock that fails: with EPS of $2, book value of $10 and a price of $25, the Graham Number is $21.21 and P/E × P/B is 31.3, well over the ceiling.
How bond yields change the formula
The revised formula ties value to interest rates: when bonds pay more, stocks must be cheaper to compete.
| AAA bond yield | Value per share | Implied P/E |
|---|---|---|
| 4.4% (Graham’s base) | $82.00 | 20.5 |
| 5% (the example) | $72.16 | 18.0 |
| 7% | $51.54 | 12.9 |
At a 4.4% yield the revised formula equals the original one. Raising the yield to 7% cuts the value to $51.54.
Where Graham’s methods break down
- Negative earnings or book value. The Graham Number needs both to be positive, and the formula gives nonsense for a loss.
- High growth. The value rises by 2 × EPS for every point of growth with no limit. At 20% growth the example would be worth $170.72, an implied P/E of 42.7. Few companies sustain such growth for a decade, which is why some users cap g or replace 8.5 + 2g with a more conservative multiplier.
- Asset-light businesses. Companies whose value lies in brands, software or patents often have low book value and fail the Graham Number test even when they are fairly priced.
- Buybacks. Repurchases reduce book value per share, so a company returning cash to shareholders can drift below Graham’s limits.
What this calculator does not include
Graham used these numbers inside a wider checklist: adequate size, a strong balance sheet, years of positive earnings, an unbroken dividend record and earnings growth. The calculator applies only the valuation part. For a value built from projected cash flows, use the DCF calculator, and to set a buy price below any estimate, the margin of safety calculator.