Formula Calculation
In The Intelligent Investor, Benjamin Graham describes a formula he used to value stocks. He disregarded complicated calculations and kept his formula simple. In his words: "Our study of the various methods has led us to suggest a foreshortened and quite simple formula for the evaluation of growth stocks, which is intended to produce figures fairly close to those resulting from the more refined mathematical calculations."
The formula as described by Graham in the 1962 edition of Security Analysis, is as follows:
V = Intrinsic Value
EPS = Trailing Twelve Months Earnings Per Share
8.5 = P/E base for a no-growth company
g = reasonably expected 7 to 10 year growth rate
Where the expected annual growth rate "should be that expected over the next seven to ten years." Graham’s formula took no account of prevailing interest rates.
Read more about this topic: Benjamin Graham Formula
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