Graham Number Calculator

Estimate the maximum fair value of a stock using Benjamin Graham's formula for defensive investors, based on trailing EPS and book value per share, then compare it to the current market price.

Quick Facts

Formula
Graham Number = √(22.5 × EPS × BVPS)
22.5 comes from Benjamin Graham's caps of a 15× P/E and a 1.5× price-to-book ratio (15 × 1.5 = 22.5).
Requires
Positive EPS and positive book value per share
The formula is undefined (negative under the square root) for unprofitable companies or negative equity.

Your Results

Calculated
Graham Number
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Maximum fair value per share
Price vs. Graham Number
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+ means price is above fair value
Margin of Safety
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(Graham Number − Price) ÷ Graham Number
Valuation Signal
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Price relative to the Graham Number

Ready

Enter EPS, book value per share, and current market price, then press Calculate.

How the Graham Number Calculator works

The Graham Number is a screening formula devised by Benjamin Graham — Warren Buffett's teacher and the father of value investing — to estimate the maximum price a defensive (risk-averse) investor should pay for a stock. It combines two per-share fundamentals, earnings and book value, into a single ceiling price using the square root of their product.

The formula

For earnings per share EPS and book value per share BVPS, the Graham Number is:

Graham Number = √(22.5 × EPS × BVPS)

The constant 22.5 is not arbitrary — Graham capped a defensive stock at a price-to-earnings ratio of 15 and a price-to-book ratio of 1.5, and 15 × 1.5 = 22.5. Because the formula takes a square root of a product, both EPS and BVPS must be positive; it is undefined for companies with losses or negative shareholder equity, which is itself a signal that the stock falls outside Graham's defensive criteria.

Worked example

Take a company with EPS of $3.50 and book value of $22.00 per share. The Graham Number is √(22.5 × 3.50 × 22.00) = √1,732.5 ≈ $41.62. If the stock currently trades at $45.00, the price sits about $3.38 above that ceiling — a margin of safety of roughly −8.1%, meaning Graham's formula suggests the stock has limited room for error at that price. If it instead traded at $35.00, the margin of safety would be a positive ~15.9%, suggesting more of a cushion.

Margin of safety

Margin of safety is calculated as (Graham Number − Price) ÷ Graham Number, expressed as a percentage. A positive value means the market price is below the calculated fair-value ceiling; a negative value means the price has already exceeded it. Graham himself favored a substantial margin of safety, not merely a positive one, before considering a stock for a defensive portfolio.

Limitations to keep in mind

  • Backward-looking inputs: EPS and book value are historical accounting figures and say nothing about future growth, competitive position, or industry trends.
  • Sector fit: the formula was built around stable, asset-heavy, dividend-paying industrial companies of Graham's era. It fits capital-intensive businesses more naturally than asset-light technology or service companies with low book value.
  • Not a complete valuation: the Graham Number ignores debt levels, cash flow, growth rate, and qualitative factors. It works best as one quick screen among several, not a final answer.

This calculator performs the arithmetic only. It does not constitute investment advice, and any figures you enter should be verified against a company's actual financial statements before you rely on them.

Frequently Asked Questions

What is the Graham Number formula?
The Graham Number equals the square root of 22.5 times earnings per share (EPS) times book value per share (BVPS): Graham Number = √(22.5 × EPS × BVPS). The 22.5 constant comes from Benjamin Graham's guideline that a defensive investor should pay no more than 15 times earnings and no more than 1.5 times book value, and 15 × 1.5 = 22.5.
What does a negative margin of safety mean?
Margin of safety is (Graham Number − current price) ÷ Graham Number. A negative value means the stock's market price is already above the Graham Number ceiling, which under Graham's defensive criteria suggests less cushion against being wrong about the company's prospects. It does not by itself mean the stock is a bad investment — only that this particular screen shows less of a safety margin.
Why does the calculator require positive EPS and book value?
The formula multiplies EPS and book value per share together and takes a square root. If either figure is zero or negative, the product under the square root is not a valid input for a real-number result, so the Graham Number cannot be computed. Companies with losses or negative equity fall outside the defensive-stock criteria the formula was designed for.
Does the Graham Number work for every type of company?
Not equally well. It was designed around stable, profitable, asset-heavy companies typical of Graham's mid-20th-century market. Asset-light businesses such as software companies often carry low book value relative to earnings, which can make the Graham Number understate a reasonable price. It is best used as one quick screening tool alongside other valuation methods, not a standalone verdict.

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