Intrinsic Value Calculator — Benjamin Graham Formula

Formula

How this is calculated

Benjamin Graham introduced this formula in the 1962 edition of Security Analysis and refined it in later work. It anchors a stock's fair value to three observable inputs: the current earnings power (EPS), the market's alternative — the yield on AAA corporate bonds (Y) — and the analyst's estimate of future earnings growth (g). The constants 8.5 (base P/E for a zero-growth business) and 4.4 (Graham's 1962 AAA yield baseline) are baked in; the Y term adjusts for the fact that as bond yields rise, growth stocks are worth less in present-value terms.

The Graham Number is a simpler secondary check using only current earnings and book value: √(22.5 × EPS × BVPS). The 22.5 comes from Graham's rule of thumb that a fair stock should not trade at more than 15× earnings or 1.5× book value (15 × 1.5 = 22.5). Comparing current price to both estimates gives a range rather than a single point estimate.

Limitations: the 8.5 base P/E and 4.4 bond-yield anchor reflect 1960s U.S. conditions. Today's market P/Es are generally higher. The formula also assumes earnings are accurate and sustainable, and that the growth estimate will materialise — both highly uncertain. Use it as a first-pass screen and a margin-of-safety cross-check, not as a precise valuation. The AAA bond yield is editable; update it to your country's current rate (circa 4–5% for the U.S. in 2024–2025, or similar investment-grade rates elsewhere).