FairValueToolkit
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GrahamBenjamin Graham (1974)

Benjamin Graham Formula & Graham Number Calculator

Calculate fair equity value using Benjamin Graham’s 1974 bond-yield adjusted growth equation and the conservative Graham Number asset-earnings ceiling.

Calculator Inputs
Income Statement > Diluted EPS
Balance Sheet > Total Equity / Diluted Shares

Theoretical Foundation & Equation

Graham established an intrinsic value benchmark anchored on zero-growth P/E of 8.5 plus twice the expected growth rate (8.5 + 2g), adjusted by the prevailing high-grade corporate bond yield (4.4 / Y). For defensive investors, the Graham Number defines the maximum purchase price.

Core Intrinsic Formula
Graham 1974 = [EPS × (8.5 + 2 × g(%)) × 4.4] / Bond Yield (Y) | Graham Number = √(22.5 × EPS × BVPS)
Variable Definitions & Disclosure Guidance
SymbolVariable NameDescriptionFiling Source Guide
EPSEarnings Per ShareTrailing Twelve Months normalized diluted EPS10-K Income Statement: Diluted EPS
BVPSBook Value Per ShareTangible common stockholders equity divided by diluted share count10-K Balance Sheet: Common Equity / Shares
gExpected Annual Growth RateExpected 7-10 year annual earnings growth percentageHistorical 5-year CAGR or conservative industry projection
YCurrent High-Grade Bond YieldCurrent yield on AAA Corporate Bonds or 10-Year Treasury (%)Moody’s AAA Corporate Bond Yield or US 10Y Yield (Graham baseline: 4.4%)
Financial Intuition: When bond yields rise, equity valuation multiples contract proportionally via (4.4 / Y). The Graham Number prevents overpaying by requiring simultaneous satisfaction of P/E <= 15 and P/B <= 1.5.

Step-by-Step Worked Example

Classic Industrial Benchmark

Standard defensive value company fitting Graham’s criteria.

Sample Financial Filing Inputs
Diluted EPS
$4.00
TTM Normalized Earnings
Book Value Per Share (BVPS)
$35.00
Balance Sheet Common Equity
Expected Growth Rate (g)
7.0%
Conservative 7-10 Year Estimate
AAA Bond Yield (Y)
4.4%
Benchmark Corporate Yield
Calculation Steps
Step 1: Calculate Graham 1974 Revised Intrinsic Value$90.00 (Fair Value)
$4.00 × (8.5 + 2 × 7.0) × 4.4 / 4.4 = $4.00 × 22.5 = $90.00
Step 2: Calculate Graham Number Defensive Ceiling$56.12 (Defensive Purchase Upper Bound)
√(22.5 × $4.00 × $35.00) = √(3,150) = $56.12
Example Conclusion & Interpretation

Graham 1974 formula suggests an intrinsic value of $90.00, while the asset-backed Graham Number establishes a conservative defensive buy threshold of $56.12.

Suitability Checklist & Limitations

Best Suited For
  • •Stable profitable industrial, manufacturing, and consumer staples companies
  • •Evaluating interest rate impacts on equity valuation multiples
  • •Defensive value investors seeking a hard margin of safety
Not Suitable For
  • •Unprofitable firms (negative EPS) or negative equity companies
  • •High-growth tech companies with growth rates exceeding 20%
Recommended Alternative Model

For dynamic growth stocks, Peter Lynch’s PEG model provides better calibration.

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Frequently Asked Questions

Graham recommended buying stocks with P/E under 15 and P/B under 1.5. Multiplying these bounds together yields 15 × 1.5 = 22.5.
Primary Citations & Source Documentation
Benjamin Graham (1974)

The Intelligent Investor (1973 Revised Edition) / Security Analysis (1934)

View Source / Filing Reference
Legal Caveat
  • The formula is a heuristic based on historical market conditions and does not substitute for detailed balance sheet analysis.