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Last updated: April 2026

GRAHAM NUMBER METHODOLOGY

Graham Number - A conservative intrinsic value screen that combines earnings power and book value per share.
Formula

Graham Number = sqrt(22.5 x EPS x Book Value Per Share)

Workflow

1

Normalize EPS if one-off gains or losses distort current earnings.

2

Calculate book value per share and apply the Graham multiplier.

3

Compare the result with market price and peer valuation signals.

Best Used For

  • Profitable companies with positive equity and relatively stable earnings.
  • A first-pass value screen before deeper peer or cash-flow analysis.

Limitations

  • Not suitable when EPS or book value is negative.
  • Can undervalue asset-light companies where book value misses intangible economics.
Required Inputs
  • Earnings per share from trailing or normalized net income.
  • Book value per share from total equity divided by shares outstanding.
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