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{{About|the investing term named after Benjamin Graham|the mathematical figure named after Ronald Graham|Graham's number}} | |||
The '''Graham number''' or '''Benjamin Graham number''' is a figure used in [[securities]] investing that measures a [[stock]]'s so-called fair value.<ref>[http://seekingalpha.com/article/253698-6-deeply-undervalued-small-cap-stocks-trading-below-the-graham-number Seeking Alpha: The Graham Number]</ref> Named after [[Benjamin Graham]], the founder of [[value investing]], the Graham number can be calculated as follows: | |||
<math>\sqrt{22.5\times(\text{earnings per share})\times(\text{book value per share})}</math> | |||
The final number is, theoretically, the maximum price that a defensive investor should pay for the given stock.<ref>[http://www.istockanalyst.com/article/viewarticle/articleid/2801008 iStock Analyst: The Benjamin Graham Number]</ref> Put another way, a stock priced below the Graham Number would be considered a good value, if it also meets a number of other criteria. | |||
This number applies only to certain types of stocks in combination with a number of other criteria. The complete Graham selection procedure is much more elaborate. No decision should be made based on this number alone.<ref>Serenity: [http://www.serenitystocks.com/grahamnumber Benjamin Graham's Misunderstood Graham-Number].</ref> | |||
==Alternative calculation== | |||
Earnings per share is calculated by dividing ''net income'' by ''shares outstanding''. Book value is another way of saying ''[[shareholders' equity]]''. Therefore, book value per share is calculated by dividing ''equity'' by ''shares outstanding''. Consequently, the formula for the Graham number can also be written as follows: | |||
<math>\sqrt{22.5 \times \left(\frac{\text{net income}}{\text{shares outstanding}}\right) \times \left(\frac{\mathrm{shareholders'\ equity}}{\text{shares outstanding}}\right)}</math> | |||
==References== | |||
{{reflist}} | |||
{{finance-stub}} | |||
[[Category:Valuation (finance)]] | |||
[[Category:Mathematical finance]] | |||
Revision as of 18:40, 18 January 2014
29 yr old Orthopaedic Surgeon Grippo from Saint-Paul, spends time with interests including model railways, top property developers in singapore developers in singapore and dolls. Finished a cruise ship experience that included passing by Runic Stones and Church.
The Graham number or Benjamin Graham number is a figure used in securities investing that measures a stock's so-called fair value.[1] Named after Benjamin Graham, the founder of value investing, the Graham number can be calculated as follows:
The final number is, theoretically, the maximum price that a defensive investor should pay for the given stock.[2] Put another way, a stock priced below the Graham Number would be considered a good value, if it also meets a number of other criteria.
This number applies only to certain types of stocks in combination with a number of other criteria. The complete Graham selection procedure is much more elaborate. No decision should be made based on this number alone.[3]
Alternative calculation
Earnings per share is calculated by dividing net income by shares outstanding. Book value is another way of saying shareholders' equity. Therefore, book value per share is calculated by dividing equity by shares outstanding. Consequently, the formula for the Graham number can also be written as follows:
References
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