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An upper limit for what a share is worth by Benjamin Graham’s defensive criteria: the square root of 22.5 times earnings per share times book value per share.
In Swedish: Grahams tal
G²
An upper limit for what a share is worth by Benjamin Graham’s defensive criteria: the square root of 22.5 times earnings per share times book value per share. 22.5 is a P/E of 15 times a price-to-book of 1.5. A rule of thumb, not a valuation of any company.
G
G=30
G equals the square root of (22.5 times (4 times 10)), equals the square root of (22.5 times 40), equals the square root of (900), equals 30
You are given
Source: Graham B (1949). The Intelligent Investor, chapter 14 (the defensive investor’s stock selection). Harper & Brothers; 4th revised edition 1973, Harper & Row. (coefficients read in Wikipedia contributors (2026). Graham number. Wikipedia, The Free Encyclopedia.) — checked October 21, 2026
EPS is the earnings per share and BVPS the book value per share. The number is a price: the most a defensive investor, by Graham’s two tests, would pay for the share.
Earnings of 4 per share and a book value of 10 per share: G = √(22.5 · 4 · 10) = √900 = 30. A share trading below 30 passes both tests at once; one at 45 does not. Turned round, a share at 30 with a book value of 10 needs earnings of at least 4 to pass.
In The Intelligent Investor Graham set two ceilings for the defensive investor: a price-earnings ratio of no more than 15, and a price of no more than 1.5 times book value. He allowed one to be exceeded if the other was low enough, as long as the product of the two stayed below 15 · 1.5 = 22.5. Setting price² / (EPS · BVPS) = 22.5 and solving for the price gives the formula.
The formula is a screen from 1949, written for established industrial companies with steady earnings and real assets on the balance sheet. It says nothing about a company whose value is in brands, software or people, where the book value is small, and it treats a single year’s earnings as representative. Graham’s other tests, on size, financial strength, dividend record and earnings growth, come before it.
Why a square root?
The product of the two ratios is the price squared over EPS times BVPS. Solving for the price undoes
the square.
Is the Graham number the same as Graham’s intrinsic value formula?
No. The intrinsic value formula, EPS × (8.5 + 2g), is a different rule of thumb from the same author.
Where is it stated?
Chapter 14 of The Intelligent Investor, which sets out the defensive investor’s stock selection;
the source is cited under the formula above.
| Solve for | Rearranged | With the numbers | Comes to |
|---|---|---|---|
| EPS | G²22.5BVPS | 30²22.5·10 | 4 |
| BVPS | G²22.5EPS | 30²22.5·4 | 10 |
| G | 30 |
Last reviewed October 20, 2026 ·How pages are reviewed
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