The Graham numberorBenjamin Graham number is a figure used in securities investing that measures a stock's so-called fair value.[1] Named after Benjamin Graham, the founder of value investing, the Graham Number can be calculated as follows:
Earnings per share is calculated by dividing net incomebyshares outstanding. Book value is another way of saying equity. Therefore, book value per share is calcualted by dividing equitybyshares outstanding. Consequently, the formula for the Graham number can also be written as follows:
The final number is, theoretically, the maximum price that a defensive investor should pay for the given stock.[2] Put another way, a stock below the Graham Number would be considered a value according to the theory behind it.
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