Graham Number Calculator

The Graham number calculator estimates a conservative value-investing price from two per-share fundamentals: earnings per share and book value per share. Unlike a broad intrinsic value calculator, which may use growth, discount rates, dividends, or cash-flow forecasts, this page is intentionally narrow. It asks whether current earnings and balance-sheet equity together support the market price under a classic Benjamin Graham-style screen.

The formula is deliberately simple: multiply 22.5 by EPS and book value per share, then take the square root. The number 22.5 comes from multiplying a 15 price-to-earnings ceiling by a 1.5 price-to-book ceiling. A stock trading below its Graham number may deserve a closer look. A stock trading above it may still be excellent, but the market is paying more than this conservative screen would allow. Informational, not investment advice.

Inputs to use

Earnings per share should be positive and representative of normal earning power. Trailing EPS works for stable companies. For cyclical companies, consider an average across a cycle so a boom year does not inflate the answer and a recession year does not unfairly depress it. The calculator rejects zero or negative EPS because the square root screen is not useful when current earnings are absent.

Book value per share is usually common shareholders’ equity divided by common shares outstanding. Use a consistent share count, and be careful with preferred stock, accumulated losses, treasury shares, goodwill write-downs, and recent acquisitions. A manufacturer with tangible assets may have book value that roughly reflects invested capital. A software company may have little book value despite strong economics. A bank may require industry-specific treatment because assets and liabilities are financial instruments rather than operating equipment.

Current market price is optional for comparison, but the form’s default includes it. When the price is positive, the calculator reports price-to-Graham number and either a margin below the Graham number or a premium above it. If the price is zero, the formula still returns a Graham number but comparison metrics are not meaningful.

Formula

The calculator uses the classic square-root expression:

$\text{Graham number} = \sqrt{22.5 \times \text{EPS} \times \text{book value per share}}$

When a market price is entered, it also calculates:

$\text{price to Graham number} = \frac{\text{market price}}{\text{Graham number}}$

$\text{margin below Graham number} = \frac{\text{Graham number} - \text{market price}}{\text{market price}} \times 100\%$

If the price is above the Graham number, the same absolute percentage is displayed as a premium above the screen.

Worked example

Use the default inputs: EPS of $5.00, book value per share of $40.00, and market price of $55.00. First multiply 22.5 by $5.00 and $40.00. The product is 4,500. The square root of 4,500 is 67.082…, so the calculator rounds the Graham number estimate to $67.08.

Next compare the market price with the estimate. Price-to-Graham number is $55.00 divided by $67.08, or 0.8199. Displayed as a percentage, that is 81.99 percent. Because $55.00 is below $67.08, the form labels the comparison as a margin below the Graham number. The margin is $67.08 minus $55.00, divided by $55.00, which equals 21.97 percent. The result note says that $55.00 is below the Graham number of $67.08.

Now try a second scenario: EPS of $3.00, book value per share of $20.00, and market price of $30.00. The product is 22.5 times 3 times 20, or 1,350. The square root is $36.74. The margin below the Graham number is $6.74 divided by $30.00, or 22.47 percent. A third scenario with EPS of $8.00, book value of $25.00, and price of $90.00 still produces a Graham number of $67.08, but now the price is above the screen and the premium is about 25.46 percent.

How to use the output

Use the Graham number as a first-pass filter, not a final appraisal. It is most helpful when you are scanning mature, profitable companies with understandable balance sheets. If a candidate trades well below the Graham number, read the annual report and ask why the discount exists. Are margins falling? Is debt high? Are assets obsolete? Has share count grown? The screen is valuable precisely because it narrows the research list before you spend time building a model.

For return planning after a possible purchase, use the ROI calculator. To see how a portfolio value compounds if returns repeat, use the compound interest calculator. If you want to value a stream of equal cash flows rather than a per-share earnings and book screen, compare this with the present value annuity calculator.

Limitations and practical tips

The Graham number can punish asset-light firms whose value comes from software, networks, brands, or research spending that accounting rules do not fully place on the balance sheet. It can also overstate value when book value contains impaired assets, old inventory, capitalized costs, or goodwill that may not be recoverable. EPS can be distorted by one-time gains, tax benefits, buybacks, or underinvestment.

Use the same fiscal period for EPS and book value per share. Prefer diluted EPS when dilution is meaningful. Compare companies within similar industries. Rerun the calculation with normalized EPS if recent profit was unusually high or low. If a stock only looks attractive because one input is aggressive, treat the margin as fragile.

Sources

• SEC Investor.gov, Investing glossary — official definitions and investor context; the Graham estimate remains a screening heuristic, not an official valuation standard.