1. What is Graham's Intrinsic Value Formula?

The Graham's Intrinsic Value formula is a method developed by Benjamin Graham to estimate the fundamental value of a stock. It provides investors with a simple way to determine whether a stock might be undervalued or overvalued based on its earnings and growth potential.

2. How Does the Calculator Work?

The calculator uses Graham's formula:

Where:

• \( EPS \) — Earnings Per Share in USD
• \( g \) — Expected annual growth rate (as decimal, e.g., 5% = 0.05)
• 8.5 — Base P/E ratio for a no-growth company
• 2 — Multiplier for growth factor

Explanation: The formula calculates what a stock should be worth based on its current earnings and expected growth rate.

3. Importance of Intrinsic Value Calculation

Details: Calculating intrinsic value helps investors make informed decisions by comparing a stock's market price to its estimated fundamental value. This is a cornerstone of value investing.

4. Using the Calculator

Tips: Enter EPS in USD and growth rate as a percentage (e.g., 5 for 5%). Both values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: Who was Benjamin Graham?
A: Benjamin Graham was an influential investor and economist known as the "father of value investing" and mentor to Warren Buffett.

Q2: What is a good margin of safety?
A: Graham recommended buying stocks at prices below two-thirds of their intrinsic value to allow for a margin of safety.

Q3: How accurate is this formula?
A: It provides a rough estimate and works best for stable, predictable companies. It should be used with other valuation methods.

Q4: What are the limitations?
A: The formula doesn't account for interest rates, competitive advantages, or other qualitative factors that affect stock value.

Q5: Should I use trailing or forward EPS?
A: Graham recommended using average earnings over several years to smooth out temporary fluctuations.