Benjamin Graham gave defensive investors two arithmetic tests for a stock price. The Graham number caps the price at what earnings and book value together can support. The Graham formula adjusts earnings for growth and for interest rates. This page opens Stock Valuation Studio on the Graham number, and the same workup carries the formula one selector away.
The Graham Number
Graham held that a defensive investor should pay no more than fifteen times earnings and no more than one and a half times book value. Multiplied together, those two ceilings give the constant in his best-known rule: a stock is priced at its limit when price equals the square root of 22.5 times earnings per share times book value per share. Above the number, at least one of the two ceilings has been breached.
The rule is deliberately stern. It was written for the defensive investor of The Intelligent Investor, buying sound companies at prices that leave room for disappointment, and it makes no allowance for growth beyond what earnings and the balance sheet already show.
The Graham Formula
Graham's second rule starts from earnings and adjusts them for growth, then corrects the result for the interest rate of the day:
EPS is earnings per share, g is the expected annual earnings growth rate in percent, 4.4 is the average yield on high-grade corporate bonds in Graham's day, and Y is that yield today. The Studio carries the formula with a growth preset of seven and a yield preset of 4.4 percent, which returns the multiplier to the classic 22.5 times earnings. Open the Graham formula in the Studio to run it on any ticker.
A Worked Example: Apple
Apple's fiscal 2025 Form 10-K, for the year ended September 27, 2025, reported diluted earnings per share of $7.46 and total shareholders' equity of $73,733 million. Divided by the 14,594,180,000 shares in the Studio workup, book value per share is $5.05. The Graham number follows:
The Studio prints $29.13 for the same company, because it carries earnings and book value unrounded through the calculation while the figures above are rounded to cents. The Graham formula on the same earnings gives 7.46 times 22.5, which is $167.85 on the rounded figure; the Studio prints $167.96, again on unrounded earnings.
Apple traded at $342.58 on the day of that workup, more than eleven times its Graham number and about double its Graham formula value. That gap is the expected result for one of the most profitable companies in the world: Graham rules price the record on the page, not the franchise, and a great business nearly always looks expensive through them. Read them as a floor of discipline, not as a measure of what a fine company can be worth.
When the Graham Rules Fit, and When They Do Not
Best for asset-backed, steadily profitable companies: manufacturers, distributors, energy majors, and mature industrials with real book value and a long earnings record. The number needs both of its inputs healthy, earnings per share and book value per share, each comfortably above zero.
Not for companies whose book value understates the business. Software firms, payment networks, and brand companies hold their value in things the balance sheet carries at little or nothing, and buybacks can shrink book value toward zero even as the business strengthens. The better tools price what those companies produce: the DCF calculator for the cash record and the Peter Lynch fair value for delivered growth.
Not while earnings or book value are negative. The square root of a negative product is not a price, and the Studio reports that state rather than forcing a figure. For a company with losses but real revenue, the better tool is the revenue-build DCF. For a company priced on its balance sheet alone, the asset-based models on the models hub state what the assets support.
The formula adds a growth allowance, so it reaches further than the number, but its growth input is a judgment, and small changes in it move the value a great deal.
Questions
Why 22.5? It is fifteen, Graham's ceiling for the price-to-earnings ratio, times one and a half, his ceiling for the price-to-book ratio. A stock at its Graham number sits exactly on both ceilings at once.
Which rule should I use? The number when you want a balance-sheet anchor and a hard ceiling. The formula when you are willing to pay something for growth and want the interest rate of the day in the calculation. The Studio prints both, and the Complete Guide explains where each sits among the thirty-one models.
Does a price above the Graham number mean sell? No. It means the price rests on more than filed earnings and book value: on growth, on returns on capital, on the future. Other models in the Studio price those things directly. Graham tests answer the narrower question of what the record alone supports.
Free Tool
Enter any US ticker and the Studio prints the Graham number from the latest filed earnings and book value. Switch the model selector to the Graham formula, or use the second link in the formula section below, to see both of Graham rules on the same company.
Graham Number CalculatorOpen in Stock Valuation Studio →Twelve Stocks Built for the Graham Number
Every tile opens Stock Valuation Studio already set on the Graham number model. The link sets the model only; enter the ticker in the Studio to run that company through it.