Graham Number Calculator

Graham's defensive investor wanted a stock that was cheap on two measures at once: against its earnings and against its assets. His rule of thumb was a price no higher than 15 times earnings and 1.5 times book value, with some give between the two: a stock with a lower P/E could be allowed a higher P/B, as long as P/E × P/B stayed within 22.5. Setting that product equal to 22.5 and solving for the price gives a single number.

P/E is price ÷ EPS and P/B is price ÷ BVPS, so P/E × P/B = price² ÷ (EPS × BVPS). When that equals 22.5, the price is exactly the Graham number. Any price below it passes the combined test, any price above it fails.

Graham also gave a quick way to value a company that is expected to grow. It starts from a P/E of 8.5 for a business with no growth and adds two points of P/E for each percent of yearly growth expected over the next 7 to 10 years. The later version scales the result by how today's bond yields compare with the 4.4% high-grade corporate yield he used when he first wrote it down.

The Pakistan substitution. Graham's Y is the AAA corporate bond yield, and Pakistan has no deep market of AAA corporate bonds to read it from. We use the 10-year PIBcut-off yield, 12.85% at the State Bank's October 7, 2026 auction, as a local high-grade yield. It is a risk-free government yield, not a corporate yield, and it carries Pakistan's inflation, so it is much higher than 4.4%. The effect is that the formula's multiple of earnings is multiplied by 4.4 ÷ 12.85 = 0.34, which brings it into the range PSX stocks actually trade at. It is an open judgement call, so Y is editable and the formula is best read as one more yardstick rather than a precise value.

A company earns Rs 20.00 per share on a book value of Rs 120.00 per share, with 8% expected growth, and trades at Rs 150.00. Its P/E is 7.5 and its P/B is 1.25, so P/E × P/B is 9.4, inside the 22.5 limit.

At Rs 150.00 the price is below the Graham number of Rs 232.38 and below the growth-formula value of Rs 167.78. The two methods weigh things differently: the Graham number leans on book value, the growth formula only on earnings and growth, so when they disagree, ask which one fits the business. The last row shows how much the choice of Y matters: using Graham's own 4.4% would multiply the growth-formula value by 2.9.

• One year of earnings. Graham averaged earnings over several years to smooth out cycles. A single strong year in oil, cement or fertiliser flatters EPS and the Graham number. Enter a normal-year EPS to be fair to cyclical companies.
• Book value is accounting, not market value. Land, plant and mines are carried at historical cost less depreciation, so in a high-inflation economy book value can understate what assets would cost today. Asset-light businesses with strong brands or technology look expensive on P/B even when they are not.
• Fixed limits from another era. The 15 and 1.5 were set for the US market of the 1960s and 70s. Interest rates in Pakistan are far higher, which is why you can change the limits under More options.
• No quality or debt check. A cheap company can be cheap for a reason: weak margins, heavy borrowing, or earnings that never arrive as cash. Look at the balance sheet before trusting a pass.
• Banks and financials. Banks have no current ratio and carry high leverage by design. Use the P/B and P/E checks and judge the rest on its own terms.

Graham values are a quick first filter. Follow up with the P/E ratio calculator to see what multiple the price implies, the intrinsic value (DCF) calculator to model growth over time, and the dividend discount model for steady payers such as FFC. To see two stocks' P/E and P/B side by side, use the stock comparison.