i What this calculator does
Benjamin Graham proposed a blunt ceiling for a defensive investor: a share should not cost more than the square root of 22.5 times earnings per share times book value per share. The 22.5 comes from his limits of 15 times earnings and 1.5 times book.
It is deliberately conservative and it rules out most of the market, which was the point. Treat it as a screen for asset-backed value rather than as a valuation, because it ignores growth, cash flow and everything qualitative.
This calculator is for educational purposes only. Results are estimates and may vary depending on market conditions, spreads, commissions, platform settings, and exchange rates. It should not be considered financial advice.
How to use the Graham Number Calculator
Every field has a working default, so the calculator produces a result the moment the page loads. Replace the defaults with your own figures and the output updates when you press the button.
- 1. Earnings Per Share (R)
- 2. Book Value Per Share (R)
- 3. Current Share Price (R)
- 4. Margin of Safety (%) Graham suggested buying well below the ceiling
The result panel reports:
- Graham Number Maximum defensible price
- Buy Below After a
Alongside the headline figures, the calculator reports p/e ratio, price to book, p/e x p/b, earnings per share. Those are the numbers that usually explain why the headline result came out where it did.
The breakdown below the result shows every step of the arithmetic, so you can check the figure rather than trust it. The formula panel names each input as it is used, which is useful if you want to reproduce the calculation in a spreadsheet.
Frequently asked questions
Where does 22.5 come from?
Graham set two limits for a defensive investor: a P/E no higher than 15 and a price to book no higher than 1.5. Multiplying those gives 22.5, and the formula takes the square root of 22.5 times EPS times book value to produce a maximum price.
Is the Graham number still useful?
As a screen, yes. As a valuation, it was never meant to be one. It systematically excludes companies whose value is in intangibles, brands or growth, which is most of the modern market. It finds asset-backed value and nothing else, which is exactly what Graham wanted.
Why does almost nothing pass?
Because the criteria are severe by design. Graham was writing for an investor who wanted to avoid permanent loss rather than maximise return. On the JSE it tends to surface cyclical resource companies and occasionally financials near the bottom of a cycle.
What margin of safety should I use?
Graham talked about buying at a meaningful discount to the calculated value rather than naming one figure. Twenty-five to fifty percent is the range most followers use. The purpose is to absorb the error in your own estimates, not to predict the price.
Can I use headline earnings?
For a JSE company, headline earnings per share is usually the better input, because it strips out capital items that distort a single year. Using a three-year average of headline EPS is closer to what Graham actually recommended.
Does this replace other valuation work?
No. It is a filter that says no to most things quickly. Anything that passes still needs the balance sheet, the cash flow and the reason the market has priced it where it has.
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