Benjamin Graham’s classic sanity check for a stock price. Enter earnings per share and book value per share to get the Graham Number — the most a defensive investor should pay — and see how the current price compares.
Answer first: the Graham Number is a quick fair-value ceiling for a stock, built from just two inputs: √(22.5 × EPS × book value per share). It comes from Benjamin Graham — Warren Buffett’s teacher and the author of The Intelligent Investor — who suggested a defensive investor should generally avoid paying more than 15× earnings or 1.5× book value. Multiply those two limits together and you get the 22.5 in the formula. A stock trading below its Graham Number passes Graham’s combined price test; one far above it is priced for something the balance sheet and current earnings alone do not justify.
Graham Number = √(22.5 × EPS × BVPS)
Example: EPS $4.00 and book value $30.00 → √(22.5 × 4 × 30) = √2700 ≈ $51.96. A price of $45 sits about 13% below that ceiling.
Graham’s two rules of thumb were a P/E ratio no higher than 15 and a price-to-book no higher than 1.5. He allowed some flexibility — a stock could carry a P/E of 12 and a P/B of 1.8, say — as long as the product of the two stayed at or under 15 × 1.5 = 22.5. The Graham Number is just that product rearranged into a single price.
| Company type | Is the Graham Number useful? |
|---|---|
| Banks, insurers, industrials | Often yes — earnings and book value are meaningful |
| Asset-heavy value stocks | Yes — this is exactly what Graham designed it for |
| Software and services | Poorly — little book value, so the formula looks brutal |
| Loss-making companies | Not defined — negative EPS has no square root |
The formula assumes book value roughly captures what the business owns. For a railroad or a bank, it often does. For a software company whose value lives in code, brands and network effects, book value misses most of the story — nearly every great tech business of the last two decades has traded far above its Graham Number for its entire life. That is not proof they were bad investments; it is proof the tool has a domain, and growth stocks sit outside it.
Reality check: a stock below its Graham Number is not automatically cheap — earnings may be about to collapse, or the book value may be stuffed with assets worth less than their carrying value (Graham called these “value traps” long before the term existed). Use it as a screen, then read the actual filings. Educational tool only — not financial advice.
Pair the Graham Number with the P/E calculator, P/B calculator and EPS calculator to see the inputs clearly, or step up to a full DCF intrinsic value calculator when you want a cash-flow-based estimate. Background reading: fundamental analysis basics.
Last updated July 2, 2026 · Written by Mustafa Bilgic. Educational only — not financial advice.
Graham Number = the square root of (22.5 × earnings per share × book value per share). With EPS of $4 and book value of $30, it is √2700 ≈ $51.96.
Benjamin Graham suggested paying no more than 15 times earnings and 1.5 times book value. 15 × 1.5 = 22.5, so the formula combines both limits into one price.
Not automatically. It passes Graham's price screen, but earnings can fall and book value can be overstated. The Graham Number is a starting filter, not a verdict.
Poorly. Software and asset-light businesses carry little book value, so the formula undervalues them structurally. It was designed for asset-heavy, established companies.
The Graham Number is undefined — you cannot take the square root of a negative product. Graham's defensive criteria excluded loss-making companies anyway.