Free valuation tool
Benjamin Graham formula calculator
This Benjamin Graham formula calculator estimates a stock’s intrinsic value from earnings per share, expected growth and today’s AAA corporate bond yield, and shows the margin of safety against the share price. Every figure is an estimate built on your own assumptions.
Graham intrinsic value calculator
Enter normalized earnings per share, a conservative growth rate and the current AAA corporate bond yield. The estimate updates as you type. The calculator runs in your browser, so nothing you enter is stored or sent.
Estimated intrinsic value, Graham’s 8.5 + 2g formula
72.16 per share
Margin of safety at a price of 60.00: 16.9%.
Implied P/E after the bond-yield adjustment: 18.0.
For comparison, the conservative 7 + 1g variant gives 45.76.
Estimate under assumptions, not a recommendation. The result depends entirely on the EPS, growth and bond yield you enter; it is not a price target, a buy or sell signal or personalized advice. See the full disclaimer.
The Benjamin Graham formula for intrinsic value
The Graham intrinsic value formula is a shortcut proposed by Benjamin Graham, the author of The Intelligent Investor and Warren Buffett’s teacher, for valuing a company with growing earnings: a multiple for a business with no growth, plus a premium for expected growth. He later added an interest-rate adjustment, because the multiple an investor can justify falls when high-grade bonds pay more.
Original formula
V = EPS × (8.5 + 2g)
Earnings times a growth-adjusted P/E.
Revised, bond-yield adjusted
V = EPS × (8.5 + 2g) × 4.4 ÷ Y
The version this calculator uses. Enter Y = 4.4 to reproduce the original, unadjusted result.
- V: estimated intrinsic value per share.
- EPS: earnings per share. Graham used “normal” earnings, not a peak or a trough year.
- 8.5: the P/E Graham considered fair for a company with no growth.
- 2g: two P/E points for each percentage point of expected annual growth over the next 7 to 10 years, entered as a whole number (6 for 6%).
- 4.4: the average yield of AAA corporate bonds in 1962, Graham’s reference level.
- Y: today’s AAA corporate bond yield, also as a whole number (5.0 for 5.0%).
The bond-yield term scales the whole result. With Y at 4.4% it changes nothing; at 5.5% it cuts the value by 20% (4.4 ÷ 5.5 = 0.8); below 4.4% it raises it. Higher interest rates therefore lower the estimate, and lower rates raise it.
Graham formula vs Graham number
The two are often confused. The Graham number, √(22.5 × EPS × book value per share), comes from Graham’s limits for the defensive investor: a P/E no higher than 15 and a price-to-book ratio no higher than 1.5 (15 × 1.5 = 22.5). It is a cap for asset-backed, modestly valued companies, not a growth valuation. Fill in the optional book value field above to see both figures side by side.
Benjamin Graham formula example, step by step
A hypothetical company, not a real stock: normalized EPS of 4.00, expected growth of 6% a year, an AAA bond yield of 5.0% and a share price of 60. These are the calculator’s default values.
- Growth multiplier: 8.5 + 2 × 6 = 20.5.
- Bond-yield adjustment: 4.4 ÷ 5.0 = 0.88, so the implied P/E is 20.5 × 0.88 = 18.04.
- Intrinsic value estimate: 4.00 × 18.04 = 72.16 per share.
- Margin of safety at a price of 60: (72.16 − 60) ÷ 72.16 = 16.9%.
- Conservative 7 + 1g variant: 4.00 × (7 + 6) × 0.88 = 45.76, below the price, so no margin of safety at all.
Same company, same data, and the conservative estimate is about 37% lower. Treat the formula as a quick test of what a price assumes, not as a precise value.
| Growth g (EPS 4.00, 8.5 + 2g) | Y = 4.4% | Y = 5.0% | Y = 6.0% |
|---|---|---|---|
| 3% a year | 58.00 | 51.04 | 42.53 |
| 6% a year | 82.00 | 72.16 | 60.13 |
| 9% a year | 106.00 | 93.28 | 77.73 |
Moving growth by three points shifts the estimate by about 29%, while raising the bond yield from 5% to 6% lowers it by about 17%. Most of your effort belongs in the growth assumption.
How to choose the inputs
- EPS. Start from diluted EPS in the annual report (the 10-K for US companies) and normalize it: average several years and remove one-off gains or write-downs. A single exceptional year flows straight into the value.
- Growth g. Compare analyst forecasts with the company’s own EPS record over 5 to 10 years and lean towards the lower figure. Above 10% to 15% a year the 2g term becomes very generous, so capping g around 15% is a common precaution.
- Bond yield Y. Use the latest Moody’s Seasoned Aaa Corporate Bond Yield, available on FRED, the Federal Reserve Bank of St. Louis database (series AAA). Enter it as a percentage, for example 5.0.
- Price. Optional. Use the latest closing price, in the same currency as EPS.
Benjamin Graham formula in Excel or Google Sheets
With EPS in B1, g in B2 (as 6) and Y in B3 (as 5.0), the revised formula is =B1*(8.5+2*B2)*4.4/B3 and the conservative variant =B1*(7+B2)*4.4/B3. With the price in B4 and the value in B5, the margin of safety is =(B5-B4)/B5.
Limits: when the Graham formula does not work
- Negative or near-zero earnings. The formula needs positive EPS. With losses, it gives no meaningful value.
- Banks, insurers and other financials. Their earnings swing with credit losses, reserves and leverage. Book value and return on equity say more, so the Graham number, which uses book value, is a more relevant rough check.
- Cyclical companies. For commodity producers, carmakers, chipmakers or airlines, peak-cycle EPS times a growth multiple overstates value at the top of the cycle. Use mid-cycle earnings or another method.
- Fast growers. The formula was built for moderate, durable growth. At 20% a year or more, 8.5 + 2g produces multiples that leave no room for error.
- The balance sheet is missing. Debt, cash, dilution and the capital needed to fund growth appear nowhere. Two companies with the same EPS and growth get the same value even if one is heavily indebted.
- Low rates inflate it. With Y below 4.4% the adjustment pushes values up, which is why Graham values looked extreme when AAA yields fell to roughly 2% to 3% in 2020 and 2021.
For a fuller picture, run the same company through the two-stage DCF intrinsic value calculator, which works from free cash flow and makes every assumption explicit.
Using the result in your research
A Graham value is a first filter: it shows whether today’s price already assumes more growth than you are willing to assume. A simple workflow:
- Shortlist companies with the undervalued stock screener, which ranks US-listed stocks by research priority (40% valuation, 25% quality, 15% growth, 15% risk, 5% technical).
- Run a quick Graham check here, then a DCF to see how much of the value depends on distant years.
- Members can compare the result with the screener’s own fair value estimate, which starts from positive EPS times a target multiple based on sector, profitability and risk (see the scoring methodology). The two are built differently, so a wide gap between them is worth investigating.
- Follow the full method in how to find undervalued stocks and the worked examples in how to calculate the intrinsic value of a stock.
Benjamin Graham formula: frequently asked questions
What is the Benjamin Graham formula?
It is Graham’s shortcut for valuing a company with growing earnings: V = EPS × (8.5 + 2g). He later adjusted it for interest rates by multiplying by 4.4 and dividing by the current AAA corporate bond yield. It turns earnings, expected growth and bond yields into an implied P/E and a value per share.
Is the Graham formula still useful today?
As a quick sanity check, yes: in seconds it shows what growth a share price implies relative to bond yields. As a valuation on its own, no. Graham offered it as a simplified approach, and it ignores debt, cash flow and the capital a business needs to grow. Use it next to a DCF and a careful reading of the annual report.
Which AAA bond yield should I use?
The latest Moody’s Seasoned Aaa Corporate Bond Yield, available on the St. Louis Fed’s FRED database (series AAA), entered as a percentage such as 5.0. Using a Treasury yield instead usually raises the value, because Treasuries tend to yield less than AAA corporate bonds.
Why does the 7 + 1g version give a lower value?
It lowers the no-growth multiple from 8.5 to 7 and halves the growth premium from 2g to 1g. Some investors prefer it because the original multipliers date from the early 1960s and look generous for many companies today. It is a modern adjustment, not Graham’s own formula, so read the gap between the two results as part of your uncertainty.
Can I use the Graham formula for growth stocks?
Graham designed the 2g term for companies with moderate, durable growth. At high growth rates the multiplier becomes extreme: 25% growth already gives 58.5 before the bond-yield adjustment. For fast growers, a two-stage DCF that lets growth fade is more realistic.
Can I use it for European or other non-US stocks?
The arithmetic works for any company, as long as EPS and price are in the same currency. The 4.4 ÷ Y adjustment was calibrated on US AAA corporate bonds, so for other markets use a comparable high-grade corporate yield in that currency and treat the result with extra caution.
Is the result a price target or a recommendation?
No. It is an estimate based only on the numbers you enter. It does not account for the company’s debt, competitive position or risks, and it is not a buy or sell signal, a price target or personalized advice.
Find companies worth valuing
The undervalued stock screener ranks US-listed stocks by research priority. Its public preview is free, delayed by at least 24 hours and limited to 8 rows; members get full access, plus our research reports and research portfolio.