Graham number
Encyclopedia
Note that this number applies only to certain types of stocks in combination with a number of other criteria. The complete Graham selection procedure is much more elaborate. No decision should be made based on this number alone.

The Graham number or Benjamin Graham number is a figure used in securities investing that measures a stock
Stock
The capital stock of a business entity represents the original capital paid into or invested in the business by its founders. It serves as a security for the creditors of a business since it cannot be withdrawn to the detriment of the creditors...

's so-called fair value. Named after Benjamin Graham
Benjamin Graham
Benjamin Graham was an American economist and professional investor. Graham is considered the first proponent of value investing, an investment approach he began teaching at Columbia Business School in 1928 and subsequently refined with David Dodd through various editions of their famous book...

, the founder of value investing
Value investing
Value investing is an investment paradigm that derives from the ideas on investment and speculation that Ben Graham and David Dodd began teaching at Columbia Business School in 1928 and subsequently developed in their 1934 text Security Analysis...

, the Graham Number can be calculated as follows:



The final number is, theoretically, the maximum price that a defensive investor should pay for the given stock. Put another way, a stock priced below the Graham Number would be considered a good value.

Alternative calculation

Earnings per share is calculated by dividing net income by shares outstanding. Book value is another way of saying shareholders' equity. Therefore, book value per share is calculated by dividing equity by shares outstanding. Consequently, the formula for the Graham number can also be written as follows:

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