1. What is the Graham Formula?

The Graham Formula is a valuation model developed by Benjamin Graham to estimate the intrinsic value of a stock. It provides a simple way to determine whether a stock is undervalued or overvalued based on its earnings and expected growth.

2. How Does the Calculator Work?

The calculator uses the Graham Formula:

Where:

• \( V \) — Intrinsic value per share (USD)
• \( EPS \) — Earnings per share (USD)
• \( g \) — Expected growth rate (%)

Explanation: The formula assumes a base P/E ratio of 8.5 for a no-growth company and adds twice the growth rate to account for future earnings potential.

3. Importance of Intrinsic Value Calculation

Details: Calculating intrinsic value helps investors make informed decisions by comparing a stock's current price to its estimated true value, identifying potential investment opportunities.

4. Using the Calculator

Tips: Enter EPS in USD and expected growth rate as a percentage. Both values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: Who was Benjamin Graham?
A: Benjamin Graham was an influential economist and investor, known as the "father of value investing" and mentor to Warren Buffett.

Q2: What is a good intrinsic value compared to market price?
A: Typically, if intrinsic value is significantly higher than market price, the stock may be undervalued and worth considering.

Q3: What are limitations of this formula?
A: The formula is simplistic and doesn't account for interest rates, competitive advantages, or other fundamental factors that affect valuation.

Q4: How accurate is this formula?
A: It provides a rough estimate and should be used alongside other valuation methods for comprehensive analysis.

Q5: What growth rate should I use?
A: Use a conservative estimate of the company's long-term earnings growth rate, typically 5-15% for stable companies.