Graham Formula was a simplified version of common financial formulas in the 1970s. It was proposed by Benjamin Graham as a way for value investors to identify the underlying value of a company’s stock.
V* = Intrinsic value per share
EPS = Earnings per share
g = Growth rate of the company
Y = 10 Yrs government bond rate
Benjamin Graham, also known as the father of value investing, was known for picking cheap stocks. He has written two all-time best selling books- “The Intelligent Investor” and “Security Analysis”.
Coincidentally, he was also the mentor of the legendary investor (and the third richest person in the world), Warren Buffett -who is supposed to inherit his value investing principles from Benjamin Graham.
The Graham Calculator is a good tool to find a rough estimate of the intrinsic value. It is simple and very easy to use. Although the values are not as pinpoint as the DCF valuation method, however, it is a good tool for shorthand analysis. Moreover, as it is said: “It is better to be approximately right, than precisely wrong