Graham Number Calculator

Benjamin Graham's Number — Classic Value Investing in an Indian Context

Benjamin Graham, the father of value investing and Warren Buffett's mentor, developed a formula to estimate the maximum fair price for a defensive investor to pay for a stock. The Graham Number combines two fundamental data points — earnings per share and book value per share — into a single price ceiling.

Graham's logic: a reasonable stock should not trade at more than 15x earnings (a PE of 15) and not more than 1.5x book value (a P/B of 1.5). The combined constraint multiplied together gives 22.5 (15 × 1.5). The Graham Number is the price that satisfies both constraints simultaneously.

Example: A company with EPS of ₹50 and Book Value per Share of ₹300. Graham Number = √(22.5 × 50 × 300) = √(3,37,500) = ₹581. If the stock trades below ₹581, it passes Graham's price test.

Graham's Defensive Investor Criteria for Indian Stocks

Graham's full checklist for defensive investors goes beyond just the number. Adapting his criteria to Indian market conditions gives a useful screen for avoiding value traps:

• Adequate size: Market cap above ₹5,000 crore (Graham specified large, established companies — micro/small caps carry additional risks)
• Financial strength: Current ratio above 2x; long-term debt not exceeding net current assets
• Earnings stability: Positive EPS in each of the last 10 years (use screener.in to verify)
• Dividend record: Uninterrupted dividends for at least 10 years
• Earnings growth: EPS in the most recent 3-year period at least 33% higher than 10 years ago
• Moderate PE: Current PE not more than 15x trailing 3-year average earnings
• Moderate P/B: P/B not more than 1.5x (P/B × PE should not exceed 22.5)

Few Indian large-caps pass all seven criteria simultaneously — which is exactly Graham's point. The screen filters for genuinely conservative value opportunities rather than popular growth stories.

Graham Number Limitations for Indian Growth Stocks

Graham's framework was built for a 1940s–1970s US market dominated by old-economy companies with tangible assets. Applied blindly to modern Indian markets, it systematically excludes some of the best businesses. TCS, Infosys, Asian Paints, and HDFC Bank all trade far above their Graham Numbers — and have compounded wealth for decades anyway.

The issue is growth. Graham designed the formula for 'defensive' investors who wanted to avoid losses, not for growth investors seeking to identify tomorrow's compounders. A company growing EPS at 25% annually justifies a PE well above 15. The Graham Number would have told you to avoid Bajaj Finance at ₹200 in 2013 — when it went on to become a ₹7,000+ stock by 2021.

Use Graham Number as a floor, not a ceiling. If a stock trades below its Graham Number AND has a decent growth profile, it is worth investigating seriously. Do not use it to cap how much you pay for quality compounders.