Graham Number

Valuation
Updated Apr 2026 • Has calculator

Benjamin Graham's formula for the maximum price a defensive investor should pay for a stock, based on EPS and book value.

What is Graham Number?

The Graham Number is a figure developed by Benjamin Graham — the father of value investing — to calculate the maximum price a defensive investor should pay for a common stock. It combines earnings per share (EPS) and book value per share (BVPS) using the formula: √(22.5 × EPS × BVPS). The constant 22.5 comes from Graham's assertion that the P/E ratio should be no more than 15 and the P/B ratio no more than 1.5 (15 × 1.5 = 22.5). If the current stock price is below the Graham Number, the stock may be undervalued; if above, it may be overvalued.

Formula

Graham Number = √(22.5 × EPS × BVPS)

Worked Example

Worked example — Microsoft Corp. (MSFT)

FY2024

Step 1  Diluted EPS (FY2024): $11.80
Step 2  Book value per share: $35.94
Step 3  Graham Number = √(22.5 × $11.80 × $35.94) = √($9,535.29) = $97.65
Step 4  → Stock traded at ~$446 — well above Graham's intrinsic value estimate

Source: Microsoft 10-K FY2024 (2024-07-30)

Calculate Graham Number

Trailing 12-month diluted EPS (must be positive)

Total equity minus preferred equity, divided by shares outstanding

Graham Number

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Not investment advice.

How to Interpret Graham Number

< 50
Low intrinsic value — likely asset-light or early stage
50 – 150
Moderate — typical range for established companies
150 – 500
High — strong earnings and book value base
> 500
Very High — dominant franchise or large-cap leader
Sources
  1. Graham, B. — The Intelligent Investor, Rev. Ed., Ch. 14
  2. Damodaran Online — Valuation