Tools/ Valuation
Graham Number Calculator
Two inputs, one ceiling price. Enter a stock's earnings per share and book value per share and this calculator applies Benjamin Graham's formula for the most a defensive investor should pay. No sign-up, and the calculation runs entirely in your browser on the numbers you type.
Graham Number
$47.43
Graham's ceiling price for this stock: the most a defensive investor pays under his rules.
Pre-filled with the worked example from this page (EPS $4.00, book value per share $25.00) so the formula is visible before you type. Replace both with a real company's figures to run it on an actual stock. Educational tool, not financial advice. The Graham Number is a screening rule of thumb, not a valuation of any specific company.
The formula
Graham Number = √(22.5 × EPS × BVPS). EPS is earnings per share, ideally a full-year or trailing-twelve-month figure so one unusual quarter does not distort it. BVPS is book value per share: what the company owns minus what it owes, divided by shares outstanding. Both inputs come from the company's financial statements, and both must be positive for the formula to mean anything.
The 22.5 is Graham's two price ceilings multiplied together: never pay more than 15 times earnings, never pay more than 1.5 times book value. That is why the result behaves like an upper bound rather than a target. Graham was not predicting where a stock should trade. He was drawing a line past which a careful investor stops buying.
A worked example
Take a company with EPS of $4.00 and book value per share of $25.00. Multiply: 22.5 × 4.00 × 25.00 = 2,250. Take the square root: √2,250 ≈ $47.43. That is the Graham Number, the ceiling price. At a market price of $35.00 the stock trades below the ceiling and passes the screen. At $60.00 it fails, whatever the story around it sounds like.
Passing is not a buy signal. It is permission to keep researching: read the earnings trend, check the debt, understand the business. Failing is not a sell signal either. It means the price already assumes more than Graham's conservative inputs can support, so the burden of proof shifts to the growth story.
Where the Graham Number misleads
- Cyclical earnings. A peak-year EPS makes a cyclical company look cheap at exactly the wrong moment. Graham himself suggested averaging earnings over several years for this reason.
- Asset-light businesses. Software and service companies carry small book values because their real assets are people and code. The formula undershoots them structurally.
- Book value quality. BVPS counts what the balance sheet says, including goodwill from acquisitions. Tangible book value is the stricter input when the balance sheet looks padded.
- Cheap for a reason. Some stocks trade below their Graham Number because the business is deteriorating. The screen finds candidates. Your due diligence decides which ones deserve capital.
Questions, answered straight
What is the Graham Number?
The Graham Number is the maximum price Benjamin Graham's rules say a defensive investor should pay for a stock. It combines a company's earnings per share and book value per share into one number: sqrt(22.5 x EPS x BVPS). If the market price sits below the Graham Number, the stock passes Graham's price discipline. Above it, his rules say pass.
Where does the 22.5 come from?
Graham set two ceilings in The Intelligent Investor: pay no more than 15 times earnings, and no more than 1.5 times book value. Multiply the two ceilings together, 15 x 1.5, and you get 22.5. The constant is both of Graham's price limits baked into a single figure.
What if a stock has negative earnings or negative book value?
The formula cannot judge it. The square root of a negative product is not a price. That is a feature, not a bug: Graham designed the screen for established, profitable companies with real assets on the balance sheet. A stock it cannot score is a stock his framework tells you to research differently or skip.
Is the Graham Number the same as intrinsic value?
No. Intrinsic value estimates what a business is worth based on its future cash flows, which is what a DCF model calculates. The Graham Number is a price ceiling built from today's earnings and book value. It answers a narrower question: at this price, am I overpaying by Graham's standards? Many investors run it as a first screen, then do the deeper work only on stocks that pass.
Does the Graham Number work for growth stocks?
Poorly, and by design. Asset-light companies with small book values and earnings reinvested for growth will almost always trade above their Graham Number. The formula was written for a different era of industrial companies. Treat a fail as information about which framework fits the business, not as a verdict on the stock.
Run it on real stocks, not just examples
Inside FullPort, the Graham calculation sits next to DCF models, reverse DCF, the Magic Formula and the rest of the valuation toolkit, applied to the stocks in your watchlist and portfolio automatically. The full picture, in one place.
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New to the concept? Read what the Graham Number is and when it misleads, or browse all FullPort resources. When a screen gives you a candidate, test the strategy around it before real money follows: paper trading, a four-week protocol.