Benjamin Graham Formula and Graham Number for Stock Valuation

In the 7th version of the automated stock analyzer, two more valuation metrics have been added: The Graham Formula and the Graham Number. Bugs and suggestions made by users have been corrected/incorporated in this edition.

The automated stock analyzer

  • pulls annual (standalone/consolidated) and quarterly financials from Value Research online
  • pulls financials from morningstar and analyzes them, adjusted
  • pulls adjusted stock price history from money control, and
  • calculates intrinsic value six different ways!

Valuation models available:

1) Price Multiple Model

2) Sustainable Growth Rate

3) Book Value Growth Rate (Buffett’s approach to valuation)

4) Discounted Cash Flow (DCF) Thanks to Debasish Hazra  and Ninand Diveakr for pointing out a bug. This is now corrected

5) Reverse DCF Valuation

6) Graham formula  and Graham number

All necessary links for learning each valuation model is provided in the Excel sheet itself. Following the flow of information in the sheet, a new investor should be able to understand how the valuation is done.

Graham Formula:

This uses the EPS, EPS growth rate, the risk-free return and long-term corporate bond yields to arrive at the intrinsic value of a stock.

Graham number:

This is thumb rule valuation that uses 15 times earnings per share and 1.5 times book value.


Note
: I am not a stock investor. I only have an academic interest in stocks and do not have a feel for the limitations of valuation metrics and ‘when’ to use ‘what’.Both these metrics are described in his book, The Intelligent Investor.

Caveats to note before using the sheet pointed out byIndranealBalasubramaium
(1) Financial stocks like banks, housing finance companies and non-banking financial companies have balance sheet structures that are likely to be different from regular companies. Make sure to read the annual report and especially notes to financial statements.
(2) Take the time out to understand valuation models and how they are derived, what the implications are. Precision can give a false sense of accuracy, especially when dealing with an uncertain future. Better to be approximately right than exactly wrong.

If you like the sheet, do consider making a monetary contribution by using the link below.

A slew of updates to this analyzer is planned. So if you got here via a Google search, do subscribe to the blog.  Do consider sharing this link with stock investing community forum so that a better analysis tool may evolve from feedback.

Download the freefincal stock analysis sheet (This is for Indian stocks). For a full list of features available, see this post.

For U.S. stocks use this free sheet: U.S. STOCK ANALYSIS SPREADSHEET

Create a "from start to finish" financial plan with this free robo advisory software template


Free Apps for your Android Phone

Install Financial Freedom App! (Google Play Store)
Install Freefincal Retirement Planner App! (Google Play Store)
Find out if you have enough to say "FU" to your employer (Google Play Store)

About Freefincal

Freefincal has open-source, comprehensive Excel spreadsheets, tools, analysis and unbiased, conflict of interest-free commentary on different aspects of personal finance and investing. If you find the content useful, please consider supporting us by (1) sharing our articles and (2) disabling ad-blockers for our site if you are using one. We do not accept sponsored posts, links or guest posts request from content writers and agencies.

Blog Comment Policy

Your thoughts are vital to the health of this blog and are the driving force behind the analysis and calculators that you see here. We welcome criticism and differing opinions. I will do my very best to respond to all comments asap. Please do not include hyperlinks or email ids in the comment body. Such comments will be moderated and I reserve the right to delete the entire comment or remove the links before approving them.

Do let us know what you think about the article