Graham Number Calculator
Calculate Benjamin Graham's intrinsic value estimate for a stock using earnings per share and book value per share.
How to use this tool
- Enter earnings per share (eps) and book value per share (bvps) in the fields above.
- Results update instantly as you type — or click Calculate.
- Read your graham number and the full breakdown beneath it.
⚠ This tool provides general estimates for education only and is not financial, tax or legal advice. Figures may not reflect your situation — verify with a qualified professional.
Formula
Graham Number = √(22.5 × EPS × BVPS)
The constant 22.5 is derived from Graham's rules of thumb: maximum acceptable P/E of 15 and maximum P/B of 1.5, since 15 × 1.5 = 22.5.
How it works
Benjamin Graham's number provides a simple upper bound on a stock's fair value based on two fundamentals: earnings power (EPS) and asset value (BVPS). The formula embeds Graham's twin valuation ceilings: a P/E ratio no higher than 15 and a price-to-book ratio no higher than 1.5. A stock trading below its Graham Number is considered potentially undervalued by the standards of defensive value investing.
Worked example
Stock with EPS $3.00 and BVPS $30.00
- EPS = $3.00, BVPS = $30.00
- Product = 22.5 × 3.00 × 30.00 = 2,025
- Graham Number = √2,025 = $45.00
Graham Number = $45.00; a stock price below $45.00 may be undervalued.
Common mistakes to avoid
- Using diluted EPS when the company reports a loss: a negative EPS makes the square root undefined, and the Graham Number simply does not apply to loss-making companies.
- Plugging in book value per share that includes substantial intangible assets or goodwill, which Graham himself would have excluded; his original methodology targeted tangible book value.
- Treating the Graham Number as a buy signal in isolation: it was designed as a conservative upper limit for a defensive investor, not a precise intrinsic value or a momentum indicator.
Key terms
- Who created the Graham Number?
- Benjamin Graham, the father of value investing and author of The Intelligent Investor, developed the underlying principles; the formula synthesizing his P/E and P/B limits became known as the Graham Number.
- What does the constant 22.5 represent?
- 22.5 = 15 (Graham's maximum P/E) × 1.5 (Graham's maximum P/B ratio), reflecting his dual margin-of-safety criteria.
- What are limitations of the Graham Number?
- It was designed for stable industrial companies and may not suit growth stocks, financial firms, or companies with intangible-heavy balance sheets where book value is low relative to earnings power.
- What is EPS?
- Earnings Per Share (EPS) is net income divided by weighted-average shares outstanding, representing per-share profitability.
- What is BVPS?
- Book Value Per Share (BVPS) is shareholders' equity divided by shares outstanding, reflecting the net asset value attributable to each share.
Frequently asked questions
- What does the constant 22.5 represent in the Graham Number formula?
- Graham stipulated that a defensive investor should pay no more than 15x earnings and no more than 1.5x book value. The product of these two limits (15 x 1.5 = 22.5) is baked into the formula so that the square root produces the maximum acceptable price consistent with both constraints simultaneously.
- How does the Graham Number relate to margin of safety?
- The Graham Number gives the maximum price Graham considered fair. Applying a margin of safety means buying at a discount to the Graham Number - traditionally 33-50% below - to protect against estimation errors and unforeseen business deterioration.
- Is the Graham Number still useful for modern growth stocks?
- Generally no. The formula penalizes companies with low current earnings and high book value, which describes capital-light tech and platform businesses. It is best suited for evaluating traditional industrial, financial, or value stocks where earnings stability and tangible assets are meaningful.