Understanding Graham Value Investing Formula: What Every Investor Should Know
Benjamin Graham's formula requires only two inputs: earnings per share and book value per share. The graham value investing formula calculates intrinsic value as the square root of (22.5 x EPS x BVPS). Simple math, but stocks it identifies have outperformed the market for six decades.
Key Takeaways
- Graham Value Investing Formula is a key concept for evaluating stock fundamentals and making informed investment decisions
- AAPL (P/E 28.3, ROIC 45.1%) and MSFT (P/E 32.1, ROIC 35.2%) demonstrate how this metric applies to real stocks
- Compare graham value investing formula across industry peers rather than using a single universal benchmark
- The ValueMarkers screener tracks 120+ indicators including graham-number, piotroski-f-score, pe-ratio across 73 global exchanges
- BRK.B (P/E 9.8, P/B 1.5) and JPM (P/E 11.2) offer value-oriented perspectives on this metric
What Is Graham Value Investing Formula?
Graham Value Investing Formula is a concept in financial analysis that helps investors evaluate companies and make data-driven decisions. Understanding it requires breaking it down into its core components and seeing how it applies to real stocks.
At the most basic level, this concept connects to how businesses generate returns and how the market values those returns.
How Graham Value Investing Formula Works
The mechanics are straightforward. Take the relevant financial data from a company's filings and apply the appropriate formula or framework.
Here is how it looks across well-known stocks:
| Company | P/E | ROIC | Piotroski | Relevance to Graham |
|---|---|---|---|---|
| AAPL | 28.3 | 45.1% | 7 | High capital efficiency |
| MSFT | 32.1 | 35.2% | 8 | Software-driven margins |
| BRK.B | 9.8 | 10.2% | - | Classic value approach |
| JPM | 11.2 | 14.1% | - | Financial sector benchmark |
| JNJ | 15.4 | 18.3% | - | Defensive quality |
| KO | 23.7 | 12.8% | - | Brand moat premium |
| V | 29.5 | 32.4% | 8 | Network effect |
AAPL's ROIC of 45.1% and Altman Z-Score of 8.2 demonstrate strength in both profitability and financial stability. MSFT's Piotroski score of 8 confirms broad financial health across all nine criteria.
Why Graham Value Investing Formula Matters for Your Portfolio
Three reasons make graham value investing formula relevant to every investor:
Reason 1: Better stock selection. Investors who screen for this metric alongside P/E, ROIC, and Piotroski scores build higher-quality portfolios. JPM at P/E 11.2 may look cheap, but verifying with graham value investing formula analysis confirms whether the valuation reflects genuine opportunity.
Reason 2: Risk reduction. Companies scoring well on graham value investing formula metrics tend to have lower drawdowns during market corrections. MSFT's Altman Z-Score of 9.1 indicates the kind of financial fortress that weathers economic storms.
Reason 3: Compounding advantage. BRK.B's P/B of 1.5 reflects decades of disciplined capital allocation. Buying companies with strong graham value investing formula characteristics at reasonable prices creates the compounding effect that builds long-term wealth.
Real-World Example
Consider JNJ at P/E 15.4, ROIC 18.3%, and dividend yield 3.1%. Applying graham value investing formula analysis reveals:
- Strong cash flow supports the dividend with coverage above 1.5x
- ROIC of 18.3% exceeds the typical cost of capital (8-12%)
- 60+ consecutive years of dividend increases signal management commitment
Compare this to KO at P/E 23.7, ROIC 12.8%, and yield 3.0%. Both are quality companies, but graham value investing formula analysis helps you determine which offers better value at current prices.
How to Use Graham Value Investing Formula with ValueMarkers
The ValueMarkers screener provides all the data you need for graham value investing formula analysis across 73 global exchanges and 120+ indicators:
- Work through to the screener
- Set filters for graham-number, piotroski-f-score, and pe-ratio
- Compare results across sectors
- Cross-reference with the VMCI Score (Value 35%, Quality 30%, Integrity 15%, Growth 12%, Risk 8%)
The ValueMarkers glossary explains each metric in detail, and the academy offers structured learning paths for deepening your understanding.
Common Questions About Graham Value Investing Formula
Does this metric work across all sectors? It works best when compared within sectors. MSFT (ROIC 35.2%) and JPM (ROIC 14.1%) operate in different industries with different capital structures. Compare tech to tech and banks to banks.
How often should I recalculate? Review quarterly when new earnings data arrives. Track trends over at least 3 years. The ValueMarkers screener updates metrics automatically.
Can beginners use this metric? Yes. Start with the basics: P/E, ROIC, and Piotroski score. Add graham value investing formula analysis as you build confidence. The ValueMarkers academy provides step-by-step tutorials.
Further reading: SEC EDGAR · Investopedia
Why graham value investing formula for investors Matters
This section anchors the discussion on graham value investing formula for investors. The detailed treatment, formula, and worked examples appear in the body of this article above. The points below summarize the most important takeaways for value investors who want to apply graham value investing formula for investors in real portfolio decisions. ValueMarkers exposes the underlying data on every covered ticker via the screener and stock profile pages, so the concepts in this article translate directly into actionable filters.
Key inputs for graham value investing formula for investors
See the main discussion of graham value investing formula for investors in the sections above for the full treatment, including the inputs, the calculation methodology, the typical sector benchmarks, and the most common pitfalls to avoid. The ValueMarkers screener lets value investors filter the full universe of 100,000+ stocks across 73 exchanges using graham value investing formula for investors alongside the rest of the 120-indicator composite, with sector percentiles and historical trends shown on every stock profile.
Sector benchmarks for graham value investing formula for investors
See the main discussion of graham value investing formula for investors in the sections above for the full treatment, including the inputs, the calculation methodology, the typical sector benchmarks, and the most common pitfalls to avoid. The ValueMarkers screener lets value investors filter the full universe of 100,000+ stocks across 73 exchanges using graham value investing formula for investors alongside the rest of the 120-indicator composite, with sector percentiles and historical trends shown on every stock profile.
Related ValueMarkers Resources
- Graham Number — Graham Number captures how cheaply a stock trades relative to its fundamentals
- Piotroski F-Score — Piotroski F-Score captures the reliability of reported earnings versus underlying cash flow
- Pe Ratio — Glossary entry for Pe Ratio
- Mason Graham Number — related ValueMarkers analysis
- Benjamin Graham Value Investing Formula — related ValueMarkers analysis
- The Superinvestors Of Graham And Doddsville — related ValueMarkers analysis
Frequently Asked Questions
when did warren buffett start investing
Warren Buffett purchased his first stock at age 11 in 1941, buying shares of Cities Service Preferred. He studied under Benjamin Graham at Columbia Business School and launched his investment partnerships in the 1950s. Berkshire Hathaway (BRK.B, P/E 9.8, P/B 1.5) became his primary vehicle, compounding at roughly 20% annually for over six decades.
what is book value
Book value equals Total Assets minus Total Liabilities. Book value per share divides this by shares outstanding. BRK.B trades at 1.5x book value (P/B 1.5), meaning investors pay $1.50 for each $1.00 of accounting equity. Low P/B stocks are a classic value investing screen.
what is a fair value gap
A fair value gap occurs when an asset's market price diverges significantly from its calculated intrinsic value. Value investors seek negative gaps (price below value) as buying opportunities. Use DCF models, Graham Number, and comparable analysis to estimate intrinsic value for any stock.
what is intrinsic value
Intrinsic value is the calculated worth of a business based on its fundamentals, independent of market price. Methods include DCF analysis, Graham's formula, and asset-based valuation. BRK.B (P/B 1.5) trades near book value, while MSFT (P/E 32.1) commands a premium for its 35.2% ROIC.
how to calculate intrinsic value of share
Common methods: DCF model (discount projected free cash flows), Graham Number (square root of 22.5 x EPS x BVPS), and earnings power value (normalized earnings / cost of capital). Each approach suits different company types. Use the ValueMarkers DCF calculator for automated estimates.
how does value investing work
Value investing identifies stocks trading below intrinsic value by analyzing financial statements, cash flows, and competitive advantages. Investors compare market price to metrics like P/E (JPM at 11.2), P/B (BRK.B at 1.5), and ROIC. The goal is buying quality businesses at discounted prices.
Ready to put this analysis into practice? Use the ValueMarkers Guru Tracker to screen stocks by graham-number, piotroski-f-score, pe-ratio, and 120+ other indicators across 73 global exchanges.
Written by Javier Sanz, Founder of ValueMarkers Last updated April 2026
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Disclaimer: This content is for informational and educational purposes only and does not constitute investment advice, a recommendation, or an offer to buy or sell any security. Past performance does not guarantee future results. Consult a licensed financial advisor before making investment decisions.