Graham Formula Calculator (Intrinsic Value & Margin of Safety)
Estimate a stock’s intrinsic value with Benjamin Graham’s growth formula, V = EPS × (8.5 + 2g) × 4.4 ÷ Y, then see the margin of safety at today’s price and the buy-below price.
How it works
Revised (1974): V = EPS × (8.5 + 2g) × 4.4 ÷ Y · original (1962): V = EPS × (8.5 + 2g) · conservative variant: V = EPS × (7 + 1g) × 4.4 ÷ Y · g = expected growth in % (as a number), Y = current AAA corporate bond yield in % · margin of safety = (V − price) ÷ V · buy-below price = V × (1 − required margin)
Benjamin Graham, the father of value investing, proposed in The Intelligent Investor a quick formula for a growth stock’s value: a no-growth company deserves a P/E of about 8.5, plus twice the expected growth rate. In the 1974 revision he scaled the result by 4.4 ÷ Y so that higher bond yields lower the value. Graham himself warned that it gives only a rough appraisal and that growth estimates are often too optimistic, which is why investors pair it with a margin of safety — buying only well below the estimated value. The conservative variant (7 + 1g) is a common modern adjustment.
Worked example
A stock with EPS of 5, expected growth of 8% and a 5% AAA bond yield is worth 5 × (8.5 + 2 × 8) × 4.4 ÷ 5 = 107.80 per share under the revised formula. At a price of 100 the margin of safety is (107.80 − 100) ÷ 107.80 = 7.24%, below the 25% required, so the buy-below price is 107.80 × 0.75 = 80.85. The formula implies a P/E of 21.6 against the current 20.0.
Sources: Benjamin Graham — The Intelligent Investor (rev. ed.), chapter 11 · Wikipedia — Margin of safety (financial)
Frequently asked questions
What is the Graham formula?
V = EPS × (8.5 + 2g), revised in 1974 to V = EPS × (8.5 + 2g) × 4.4 ÷ Y, where g is the expected growth rate over the next 7–10 years and Y the current yield on AAA corporate bonds.
What growth rate should I use?
A conservative estimate of long-run earnings growth for the next 7–10 years — analysts’ forecasts trimmed down, or the company’s historical growth if it is likely to continue. Rates above 15% tend to produce unrealistic values.
What is the difference with the Graham number?
The Graham number (√(22.5 × EPS × book value per share)) is a ceiling price for defensive, low-growth stocks. The Graham formula values a company from its earnings and expected growth.
What margin of safety should I require?
Value investors typically want 20% to 50% depending on how predictable the business is. The more uncertain the earnings and growth, the larger the margin.
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Educational estimate, not investment advice. Returns, defaults, rates and exchange rates are uncertain and past results do not guarantee future ones — consider independent professional advice before investing.