# Graham Formula Calculator

LAST UPDATE: September 24th, 2020

## Definition – What is the Graham Formula?

The Graham Formula was a simplified version of common financial formulas in the 1970s. It was proposed by Benjamin Graham as a way for value investors to identify the underlying value of a company’s stock.

## Formula – How to calculate the Graham Formula

Graham Formula (Simple) = Earnings per Share x (8.5 + (2 x reasonably expected 7-10 year growth rate))

Graham Formula (Revised) = (Earnings per Share x (8.5 + (2 x reasonably expected 7-10 year growth rate)) x 4.4) / Current Yield on AAA Bonds

### Example

Simple – A stock has a share price of \$2.50 and an expected growth rate of 5.59%.

Graham Formula (Simple) = 2.50 x (8.5 + (2 x 5.59)) = 2.50 x (8.5 + 11.18) = 2.50 x 19.68 = 49.2

Revised – A stock has a share price of \$2.50, an expected growth rate of 5.59%, and AAA bond yields are 1.72%.

Graham Formula (Revised) = (2.50 x (8.5 + (2 x 5.59)) x 4.4) / 1.72 = (2.50 x (8.5 + 11.18) x 4.4) / 1.72 = (2.50 x 19.68 x 4.4) / 1.72 = 216.48 / 1.72 = 125.86