Graham Value Investing

Valuation Methods & Formulas

The calculations below are derived from Graham's Security Analysis and The Intelligent Investor. All inputs are taken directly from the company's most recent financial statements (10-K filings via SEC EDGAR).

1. Graham Number

Formula: √(22.5 × EPS × Book Value per Share)

Origin: Graham observed that a defensive investor should not pay more than 15 times earnings or 1.5 times book value. The product of these two limits (15 × 1.5 = 22.5) creates a single conservative valuation ceiling.

Usage: The Graham Number represents the maximum price a defensive investor should pay. A current market price below this number suggests potential undervaluation.

2. Graham Formula (Original)

Formula: V = EPS × (8.5 + 2g)

Where:

• V = Intrinsic Value per share
• EPS = Trailing twelve-month earnings per share
• 8.5 = Base P/E for a zero-growth company
• g = Expected annual earnings growth rate (as a whole number, e.g., 5 for 5%)

Usage: This formula estimates growth-adjusted intrinsic value. Graham intended it for near-term (5–7 year) growth projections, not speculative long-term forecasts.

3. Graham Formula (Adjusted for Bond Yield)

Formula: V = [EPS × (8.5 + 2g) × 4.4] / AAA Bond Yield

Where:

• 4.4 = Graham's historical reference corporate bond yield (circa 1960s)
• AAA Bond Yield = Current yield on AAA-rated corporate bonds (via FRED)

Usage: This adjustment normalizes the formula for changing interest rate environments. When bond yields rise, the calculated intrinsic value falls, and vice versa.

4. Net-Net (NCAV) per Share

Formula: NCAV/share = (Current Assets – Total Liabilities – Preferred Stock) / Shares Outstanding

>Threshold: Graham required a purchase price below 66% (two-thirds) of NCAV per share.

Usage: This is the most conservative valuation method. True net-net opportunities are rare in modern markets but remain the highest-conviction Graham signal when found.

5. Margin of Safety

Formula: Margin of Safety = (Intrinsic Value – Current Price) / Intrinsic Value

Thresholds:

• ≥ 50% → Strong Buy
• 33–50% → Buy
• 20–33% → Consider
• < 20% → Avoid

Usage: The Margin of Safety is the central discipline of Graham investing. The calculation is applied to the lowest reasonable intrinsic value among the methods above.

Note on Automation

All formulas on this site are computed automatically using data from the company's SEC filings. Users may also calculate manually using the values displayed in each analysis report.

Disclaimer: This website is for educational and informational purposes only. Nothing on this site constitutes financial, investment, legal, or tax advice. All calculations, screeners, and commentary are based on publicly available data and historical formulas. Past performance does not guarantee future results. Always conduct your own research and consult with qualified professionals before making investment decisions. The authors and operators of this site are not registered investment advisors.