Graham number calculator
Benjamin Graham's ceiling on what a defensive investor should pay for a share.
Where it comes from
In The Intelligent Investor, Graham suggested a defensive investor pay no more than 15 times earnings and 1.5 times book value, and that the two multiplied should not exceed 22.5. The Graham number is the price at which both limits bind together.
The formula
Graham number = √(22.5 × earnings per share × book value per share)
Limits
It was built for stable industrial companies with real assets on the balance sheet. Businesses whose value is in brands, software or people have little book value, so the number is low for almost every one of them. Use it as a screen for asset-heavy companies, next to price to book and P/E.
For education, not investment advice.
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