Graham Number Calculator
Free Graham Number Calculator: square root of 22.5 times EPS and book value per share yields Benjamin Graham's fair value to compare with current price.
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How It Works
Enter trailing twelve month earnings per share, book value per share, and current stock price. The Graham Number requires both EPS and BVPS to be positive. If either is negative or zero, calculation displays as N/A because the square root formula needs positive inputs. Pull EPS and BVPS from the latest annual or quarterly SEC filing rather than headline analyst estimates for consistency with Benjamin Graham defensive approach. Graham designed the metric for stable industrial companies with tangible balance sheets, not speculative growth names with negative book value. Banks, insurers, and asset light software firms need different valuation frameworks beyond this classic formula. Use diluted EPS when share count expanded materially during the year.
The calculator computes Graham Number as the square root of twenty two point five multiplied by EPS multiplied by BVPS. It compares fair value to current price and shows margin of safety percentage, implied P/E, implied P/B, and price to Graham ratio. Margin bands classify adequate above thirty three percent, moderate fifteen to thirty three percent, and thin below fifteen percent. Negative margin flags overvaluation relative to Graham limits. Compare margin bands across a watchlist to rank candidates for deeper research before committing capital. Implied ratios show whether price violates Graham maximum P/E of fifteen or P/B of one point five even when headline multiples look reasonable on adjusted earnings. Document sector context when ranking because capital intensity varies widely across industries. Recompute after each earnings release when EPS and book value shift materially.
Apply the Graham Number as a first pass value screen, not a standalone buy signal. Pair it with qualitative checks: earnings stability over five years, dividend record, and current ratio above two. Benjamin Graham originally required these additional filters before a stock passed his defensive criteria. Relying solely on the number without the qualitative screen may flag companies with temporarily inflated EPS from one time gains or accounting adjustments. Cross reference with Altman Z Score for balance sheet health and Free Cash Flow Yield for earnings quality before sizing live positions. The calculator automates the math but the investor supplies the judgment Graham insisted on in The Intelligent Investor.
Use Graham Number Calculator whenever inputs change: after market moves, new contributions, or revised personal assumptions. Bookmark the page for quick reruns without installing software.
Step by step
- Open Graham Number Calculator and enter your current inputs.
- Review calculated outputs and summary tables.
- Adjust assumptions and compare scenarios side by side.
Worked example
Enter trailing twelve month earnings per share, book value per share, and current stock price. Enter the sample inputs described in How it works to reproduce the scenario step by step.
Adjust one input at a time to see sensitivity. Graham Number Calculator updates instantly so you can stress test optimistic and conservative assumptions before acting.
When to use this calculator
Reach for Graham Number Calculator when benjamin graham's fair value: square root of 22.5 multiplied by eps and book value per share; compare to current price.. It suits quick what if analysis before trades, allocation changes, or plan updates.
Pair with related tools when the decision spans taxes, liquidity, or multi year projections beyond what one formula captures.
Common mistakes
Copying outputs without checking input units or stale market prices is a frequent error with Graham Number Calculator. Confirm tickers, percentages, and dates before acting.
Running a single baseline scenario ignores tail risks. Stress test with conservative inputs and compare against related tools listed below when the decision is material.
The Formula
Graham Number = √(22.5 × EPS × BVPS)
where EPS = Earnings Per Share (TTM)
BVPS = Book Value Per Share
Margin of Safety = (Graham Number − Price) / Graham Number × 100
Twenty two point five equals P/E limit fifteen times P/B limit one point five. Use trailing twelve month EPS from latest reported quarter. Not suitable for growth stocks, financials, or negative earnings. Margin bands follow traditional Graham defensive thresholds. Refresh inputs after each earnings release when fair value shifts.
Limitations and assumptions
Twenty two point five equals P/E limit fifteen times P/B limit one point five. Use trailing twelve month EPS from latest reported quarter. Not suitable for growth stocks, financials, or negative earnings. Margin bands follow traditional Graham defensive thresholds. Refresh inputs after each earnings release when fair value shifts. Graham Number Calculator does not replace personalized advice. Fees, slippage, account specific rules, and behavioral constraints may change real world outcomes.
Key terms
- What is the Graham Number
- The Graham Number is a fair value estimate developed by Benjamin Graham, father of value investing.
- What does the 22.5 constant mean
- The constant twenty two point five comes from Graham maximum acceptable P/E ratio of fifteen and maximum P/B ratio of one point five.
- Model assumption
- Margin of safety is the percentage discount of current price relative to Graham Number.
Compare alternatives
Combine with Free Cash Flow Yield and Altman Z Score on portfolios. Use those calculators when graham number calculator alone does not capture the full decision.
Internal links on portfolios.tools help you chain calculators: run Graham Number Calculator first, then validate edge cases with a specialized tool from the related section below.
FAQ
What is the Graham Number?
The Graham Number is a fair value estimate developed by Benjamin Graham, father of value investing. It combines earnings per share and book value per share into one figure: square root of twenty two point five times EPS times BVPS. It represents the maximum price a defensive investor should pay under Graham classic rules. The formula assumes profitable companies with tangible assets on the balance sheet. It was not designed for early stage tech, distressed turnarounds, or firms whose value sits in intangible assets rather than plant and equipment. Use it as a first pass screen, not a final buy signal. Graham paired the number with qualitative criteria including earnings stability and dividend record.
What does the 22.5 constant mean?
The constant twenty two point five comes from Graham maximum acceptable P/E ratio of fifteen and maximum P/B ratio of one point five. Multiplying them ensures both limits hold simultaneously at the Graham Number price. A stock trading exactly at Graham Number would show P/E of fifteen and P/B of one point five. If price exceeds Graham Number, at least one classic value limit is violated. The constant encodes Graham discipline that cheap on earnings alone is insufficient if price also exceeds reasonable book value multiples. Modern value investors sometimes relax P/B limits for asset light franchises but then abandon strict Graham Number interpretation.
How should I interpret the margin of safety?
Margin of safety is the percentage discount of current price relative to Graham Number. Positive margin means price sits below fair value. Above thirty three percent is adequate under traditional Graham thresholds. Fifteen to thirty three percent is moderate. Below fifteen percent is thin cushion. Negative margin indicates overvaluation per the formula. Value investors use margin to size conviction and prioritize research depth, not as automatic buy or sell triggers. Wider margin supports patience through volatility. Thin margin demands stronger qualitative moat evidence before sizing positions. Klarman style investors may require wider margins on cyclicals with volatile earnings streams.
Does the Graham Number work for all stocks?
No. Graham Number only works for companies with positive earnings and positive book value. It fails for negative EPS, negative book value, or firms whose assets are mostly intangible. Early stage tech, biotech, and asset light SaaS names need DCF, revenue multiples, or sector specific frameworks. Banks and insurers carry different balance sheet structures where book value meaning differs from industrial firms. Graham himself applied stricter screens before even reaching the number calculation. Treat N/A results as signals to switch valuation methods rather than data entry errors. Financial firms often trade below book for regulatory reasons unrelated to Graham logic.
What are the limitations of the Graham Number?
Graham Number is simplified and ignores growth rates, competitive advantages, industry dynamics, and intangible assets. It may undervalue modern technology leaders or brand heavy consumer franchises. It may overvalue cyclicals at peak earnings when EPS is temporarily inflated. Use alongside earnings yield, free cash flow yield, and balance sheet quality screens. Pair with Altman Z Score when screening distressed candidates. Document why intrinsic value from other methods diverges from Graham fair value before overriding the formula with qualitative judgment. Growth investors accepting premium multiples explicitly reject Graham Number as primary fair value anchor.
How do I use this Graham Number calculator on my phone or tablet?
Yes. Graham Number Calculator runs entirely in your mobile browser with the same formulas as desktop. Optional localStorage may remember inputs on your device when enabled in browser settings.
Where is my data stored when I use Graham Number Calculator?
Nowhere on our servers. Calculations execute locally in your browser. Optional localStorage saves form fields on your device only and never transmits portfolio numbers over the network.
Should I rely on Graham Number Calculator for tax or legal decisions?
No. Graham Number Calculator provides educational math only. Tax law, account rules, and personal circumstances vary. Consult a qualified tax or legal professional before transactions with material consequences.
Related Tools
Combine with Free Cash Flow Yield and Altman Z Score on portfolios.tools when screening value candidates beyond Graham classic formula. Cross check margin bands with DCF Valuation and P/E Screener before sizing live positions in taxable accounts.