1. What is the Graham Number?

The Graham Number is a metric developed by Benjamin Graham to estimate the maximum fair value for a stock. It provides a simplified way to identify potentially undervalued stocks based on earnings and book value.

2. How Does the Calculator Work?

The calculator uses the Graham Number formula:

Where:

• \( EPS \) — Earnings per Share (USD)
• \( BVPS \) — Book Value per Share (USD)
• 22.5 — Graham's multiplier representing 15 P/E × 1.5 P/B

Explanation: The formula combines price-to-earnings (P/E) and price-to-book (P/B) ratios to estimate a fair valuation ceiling for a stock.

3. Importance of Graham Number

Details: The Graham Number helps identify potentially undervalued stocks. Stocks trading significantly below their Graham Number might be worth further analysis.

4. Using the Calculator

Tips: Enter EPS and BVPS in USD. Both values must be positive numbers. The result shows the estimated maximum fair value per share.

5. Frequently Asked Questions (FAQ)

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

Q2: How should I use the Graham Number?
A: Compare a stock's current price to its Graham Number. Prices below the Graham Number may indicate undervaluation.

Q3: What are limitations of the Graham Number?
A: It doesn't account for growth, competitive advantages, or other qualitative factors. It works best for stable, established companies.

Q4: Why 22.5 in the formula?
A: It represents Graham's suggested maximum of 15× P/E ratio multiplied by 1.5× P/B ratio (15 × 1.5 = 22.5).

Q5: Is the Graham Number perfect?
A: No, it's a screening tool, not a complete analysis. Always research companies thoroughly before investing.