Fundamental Glossary / Valuation Ratios
Graham Number
A conservative screen from Benjamin Graham that combines earnings and book value into a ceiling price.
Formula
Square root of (22.5 x earnings per share x book value per share). The 22.5 is 15 times earnings times 1.5 times book.
What it means
Graham looked for a price no more than 15 times earnings and no more than 1.5 times book. Multiplying those limits gives 22.5, and the square-root form allows a higher P/E if P/B is lower, and the reverse.
The Graham number is a past-earnings screen for defensive investors. It is not a discounted-cash-flow value and it does not forecast growth.
How to read it
A price below the Graham number passes the screen on the latest earnings and book value. It still needs a check that earnings are not a one-year spike and that book value is tangible.
What to watch
The screen rejects many good businesses that deserve more than 15 times earnings because they grow and earn high returns on capital. Use it as a filter for statistically cheap stocks, then do the fundamental work.
This note explains the term. It is not a research recommendation, a target price, or a comment on any security. Ratios and regulatory thresholds change; use the latest filing or circular for a live figure.