Graham Number Calculator
Calculate Benjamin Graham’s fair-value ceiling for a stock — √(22.5 × EPS × book value per share) — plus the margin of safety at today’s price and the P/E × P/B test for defensive investors.
How it works
Graham number = √(22.5 × EPS × book value per share) · 22.5 = 15 (maximum P/E) × 1.5 (maximum P/B) · margin of safety = (Graham number − price) ÷ Graham number
In The Intelligent Investor (chapter 14) Benjamin Graham told defensive investors not to pay more than 15 times average earnings or 1.5 times book value, and allowed a trade-off between the two as long as P/E × P/B stays at or below 22.5. Solving that limit for the price gives the Graham number, the highest price a conservative investor should pay. It works only for profitable companies with positive book value and ignores growth, so it suits stable, asset-heavy businesses better than fast-growing or asset-light ones.
Worked example
A stock with EPS of 5.00 and book value of 25.00 per share has a Graham number of √(22.5 × 5 × 25) = √2,812.5 = 53.03. At a price of 45.00 the margin of safety is (53.03 − 45) ÷ 53.03 = 15.15%. Its P/E is 9.00, its P/B is 1.80 and their product, 16.20, is inside Graham’s 22.5 limit.
Sources: Benjamin Graham — The Intelligent Investor, ch. 14 (Stock selection for the defensive investor) · Investopedia — Graham Number
Frequently asked questions
Why does the Graham number use 22.5?
Graham capped the price of a defensive stock at 15 times earnings and 1.5 times book value; 15 × 1.5 = 22.5. A stock may exceed one limit if the other is low enough that the product stays below 22.5.
Can I calculate it for a company that loses money?
No. With negative earnings or negative book value the product under the square root is negative, so the Graham number does not exist — the formula is meant for profitable, established companies.
Is a stock below its Graham number a buy?
Not by itself. It only says the price passes Graham’s valuation test. He also required adequate size, a strong balance sheet, earnings stability, a long dividend record and moderate earnings growth.
Which EPS should I use?
Graham preferred average earnings over several years to smooth the cycle. Trailing-12-month EPS is common for a quick check; a 3-year average is more conservative.
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Educational estimate, not investment, trading or tax advice. Brokers, exchanges and data providers use their own conventions, fees and figures — confirm with your broker, the exchange’s documentation or a licensed adviser before acting.