Calculator Panel
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Enter your values above and click Calculate.
What This Calculator Does
This calculator implements the classic revised Benjamin Graham intrinsic value equation, adjusting valuation for earnings, growth rates, and prevailing corporate interest rates.
How to Use This Calculator
Enter trailing Twelve Months EPS, expected annual growth rate, and the current AAA corporate bond yield. Click Calculate to view the fair value.
How the Calculation Works
The underlying math engine processes your inputs using exact formulas. This systematic approach ensures professional, institutional-grade calculation precision:
Mathematical Formula
Formula Legend:
- · EPS = Trailing Twelve Months (TTM) Earnings Per Share.
- · 8.5 = Theoretical P/E ratio for a zero-growth company.
- · g = Expected earnings growth rate over 7 to 10 years.
- · 4.4 = Average yield on high-grade corporate bonds in 1962.
- · Y = Current yield on AAA corporate bonds.
Practical Example
A company has an EPS of $3.50, an expected growth rate of 6.0%, and the current AAA corporate bond yield is 4.5%:
Step-by-Step Mathematical Walkthrough:
- 1 EPS = $3.50.
- 2 Growth factor = 8.5 + 2 * 6.0 = 20.5.
- 3 Multiply: $3.50 * 20.5 * 4.4 = $315.70.
- 4 Divide by bond yield: $315.70 / 4.5 = $70.16.
- 5 The Benjamin Graham intrinsic value is $70.16.
Important Assumptions & Notes
- The growth rate enters linearly into the valuation multiplier.
- The prevailing AAA corporate bond yield accurately represents safe income alternatives.
Common Mistakes or Considerations
- Applying the Graham formula to cyclical or highly volatile industries where trailing EPS is highly distorted.
- Overestimating the long-term growth rate, which exponentially inflates the calculated fair price.
Frequently Asked Questions
What is Benjamin Graham's Intrinsic Value formula?
It is a valuation equation developed by the 'father of value investing,' Benjamin Graham. It values a stock based on earnings, growth prospects, and prevailing risk-free interest rates.
What does the 8.5 factor represent?
Graham assumed that a stock with 0% long-term growth deserves a baseline P/E ratio of 8.5.
Why is corporate bond yield included in the formula?
The corporate bond yield (Y) adjusts the valuation for interest rate environments. When bond yields are high, stock valuations must fall to be competitive.
How conservative is the Benjamin Graham formula?
The classic formula can be quite aggressive for high-growth companies. Many value investors apply a hair-cut or use a margin of safety to be conservative.
What is Trailing Twelve Months (TTM) EPS?
TTM EPS is the sum of a company's net earnings per share over the immediate past 12 months, representing its actual core earnings power.