π Graham Number Calculator
Graham's defensive fair-value ceiling.
Graham number per share
Estimates for planning only, not financial advice.
The Graham number is Benjamin Graham's formula for the maximum price a defensive investor should pay: the square root of 22.5 times earnings per share times book value per share. With EPS of $5.00 and book value of $40.00, the Graham number is sqrt(22.5 x 5 x 40) = $67.08. Pay less than that and Graham's math says you have a margin of safety.
How to Use This Calculator
Enter trailing-twelve-month EPS and current book value per share, both positive. The calculator returns the Graham number, the ceiling price for a defensive purchase.
Enter EPS for the last twelve months, diluted.
Enter book value per share from the latest balance sheet.
Compare the Graham number to the market price. For a growth-aware valuation, our intrinsic value calculator runs a DCF instead.
The Graham Number Formula
The 22.5 is not magic; it is 15 times 1.5, Graham's maximum acceptable P/E times his maximum acceptable price-to-book. The formula therefore bakes in two valuation ceilings at once. It was designed for stable, profitable, dividend-paying companies, the defensive investor's hunting ground, and it deliberately ignores growth projections because Graham distrusted them. For asset-light tech firms with little book value, the number breaks down and understates value badly.
Worked Example
EPS of $5.00 and book value of $40.00: 22.5 x 5 x 40 = 4,500, and sqrt(4,500) = $67.08. If the stock trades at $50, it sits 25% below the Graham number, which Graham would call a buy for the defensive investor. At $90, it exceeds the ceiling and fails his test no matter how good the story sounds. Note what the formula punishes: a company with EPS of $5 but book value of only $4 gets a Graham number of $21.21, because there is no asset base behind the earnings.
Where Graham Still Works
The Graham number shines on boring, profitable businesses: industrials, insurers, consumer staples with real book value. It fails on modern compounders where book value understates intangible assets, which is most of today's market leaders. Graham himself would apply it as a screen, not a verdict: passing the test starts the research, it does not end it. Also remember it uses current EPS and book, not forecasts, so it is backward-looking by design.
My view: run the Graham number first for a quick reality check, then do the real work with a DCF. If a stock fails Graham but passes your DCF, you are explicitly betting that growth justifies what Graham would not pay. That is a fine bet to make, but make it consciously. And if it passes Graham at today's price, you have found something the market may be mispricing, which is exactly what the old man was hunting.
Estimates for planning only, not financial advice.
Frequently Asked Questions
What is the Graham number?
The square root of 22.5 times EPS times book value per share: Benjamin Graham's formula for the maximum price a defensive investor should pay for a stock. Below it suggests a margin of safety.
Why 22.5 in the Graham formula?
It is 15 times 1.5: Graham's ceiling P/E ratio times his ceiling price-to-book ratio. The formula enforces both limits simultaneously in one number.
Who was Benjamin Graham?
The father of value investing, Warren Buffett's teacher, and author of The Intelligent Investor (1949). His methods emphasize buying below intrinsic value with a margin of safety.
Does the Graham number work for tech stocks?
Poorly. Asset-light companies have little book value, so the formula understates them severely. Graham designed it for industrial-era firms with tangible assets. Use DCF for compounders.
Should I buy below the Graham number automatically?
No. It is a screening tool, not a buy signal. A stock below its Graham number still needs research into why it is cheap: it may deserve the discount. Graham used it to find candidates, then investigated.
What if EPS or book value is negative?
The formula does not apply; the square root of a negative is meaningless. Loss-making or negative-equity firms fail Graham's defensive criteria by definition.
How does the Graham number differ from DCF?
The Graham number uses only current EPS and book value with fixed multiple caps. DCF projects future cash flows and discounts them. Graham is a quick ceiling; DCF is a full valuation.
What is a margin of safety?
Graham's central concept: buying far enough below estimated value that errors in your analysis do not cause losses. The Graham number operationalizes it as a price ceiling.
Did Graham use the formula himself?
Rarely in this exact form; it was distilled from his principles by later writers. Graham's own screens used explicit P/E and price-to-book ceilings stock by stock. The number is best seen as his philosophy compressed into arithmetic.
Does the Graham number account for dividends?
Not directly. Graham favored dividend-paying companies, but the formula uses only EPS and book value. A strong dividend record was a separate qualitative check in his screening, not part of the arithmetic.