Graham number (Graham no.)
Graham's arithmetic ceiling on what a defensive investor should pay per share, built from earnings and book value.
It is a single, reproducible number stating a conservative maximum price, which is exactly what a rule is for.
How it is computed here
Square root of (22.5 x earnings per share x book value per share)
Measured over the latest complete fiscal year, as filed. Filed under value. Higher is the stronger reading, other things equal.
No published threshold exists for this figure, so this page prints none. Read it against the company's own history and its peers instead.
When it misleads
- The 22.5 is Graham's ceiling of 15x earnings multiplied by 1.5x book. It is a rule from 1973 applied to companies that mostly did not exist then.
- Undefined when either earnings or book value per share is negative, and withheld rather than shown as zero.
- It structurally undervalues businesses whose assets are not on the balance sheet.
Questions
How is graham number calculated?
Square root of (22.5 x earnings per share x book value per share). Measured over the latest complete fiscal year, as filed.
What does graham number tell a value investor?
It is a single, reproducible number stating a conservative maximum price, which is exactly what a rule is for.
When does graham number mislead?
The 22.5 is Graham's ceiling of 15x earnings multiplied by 1.5x book. It is a rule from 1973 applied to companies that mostly did not exist then. Undefined when either earnings or book value per share is negative, and withheld rather than shown as zero. It structurally undervalues businesses whose assets are not on the balance sheet.