1. What is the Graham Number?

The Graham Number is a metric developed by Benjamin Graham to estimate the maximum fair value for a stock. It represents the upper limit of the price range that a defensive investor should pay for a stock.

2. How Does the Calculator Work?

The calculator uses the Graham Number formula:

Where:

• \( EPS \) — Earnings per share (currency/share)
• \( Book\ Value \) — Book value per share (currency/share)
• 22.5 — Graham's multiplier representing 15 P/E × 1.5 P/B

Explanation: The formula combines earnings power (EPS) and asset value (Book Value) with Graham's conservative valuation multiples.

3. Importance of Graham Number

Details: The Graham Number helps identify potentially undervalued stocks by comparing a stock's current price to its fundamental value based on earnings and assets.

4. Using the Calculator

Tips: Enter EPS and Book Value in the same currency per share. Both values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: Why does Graham use 22.5 in the formula?
A: 22.5 comes from Graham's recommended maximum P/E of 15 multiplied by maximum P/B of 1.5 (15 × 1.5 = 22.5).

Q2: What is a good Graham Number ratio?
A: Stocks trading below their Graham Number may be undervalued, while those trading above may be overvalued.

Q3: What are the limitations of the Graham Number?
A: It doesn't account for growth, competitive advantages, or other qualitative factors. It works best for stable, mature companies.

Q4: Should I only buy stocks below Graham Number?
A: It's one screening tool among many. Growth companies often trade above their Graham Number due to future potential.

Q5: How often should I calculate Graham Number?
A: Recalculate when new financial statements are released (quarterly or annually) as EPS and Book Value change.