Benjamin Graham, Public-Utilities and Financial Enterprises

Utilities and Financials — unlike Industrials — are not evaluated using sales, current assets or current liabilities.

Graham wrote the following on the subject of analyzing Utilities and Financials.

1. Adequate Size of the Enterprise - not less than $50 million of total assets for a public utility.
Note: About $250 million of total assets today, when adjusted for inflation.
2. A Sufficiently Strong Financial Condition - For public utilities the debt should not exceed twice the stock equity (at book value).
Chapter 14: Stock Selection for the Defensive Investor, The Intelligent Investor.
The Public-Utility “Solution”
We exclude one criterion from our tests of public-utility stocks—namely, the ratio of current assets to current liabilities. The working-capital factor takes care of itself in this industry as part of the continuous financing of its growth by sales of bonds and shares. We do require an adequate proportion of stock capital to debt.
Chapter 14: Stock Selection for the Defensive Investor, The Intelligent Investor.
Investing in Stocks of Financial Enterprises
We have no very helpful remarks to offer in this broad area of investment—other than to counsel that the same arithmetical standards for price in relation to earnings and book value be applied to the choice of companies in these groups as we have suggested for industrial and public-utility investments.
Chapter 14: Stock Selection for the Defensive Investor, The Intelligent Investor.

Serenity's Classic Graham Screener follows Graham's standard 17-rule Value Investing framework.

The Advanced Graham Screener has additional filters which — when used in combination with the standard Graham rules — allow for the screening of Utilities and Financials.

Utilities and Financials are therefore identified using Total Assets and Equity:Debt on Serenity, just as Graham recommended.

Screening for Utilities and Financials

Considering today's bond yields, a Graham Number(%) of 70% is sufficient for a Defensive grade stock to clear Graham's criteria.

The filter values on the Advanced Graham Screener would therefore be:

Earnings Stability (100% ⇒ 10 Years): 100%
Dividend Record (100% ⇒ 20 Years): 100%
Earnings Growth (100% ⇒ 33% Growth): 100%
[2 x Equity] ÷ Debt: 100%
Size in Assets (100% ⇒ 250 Million): 100%
Graham Number(%): 70%
Sector(s) : Financial Services, Utilities
Source (Analyzed by): Serenity

Open Preloaded Screener

Note: The rules for Utilities and Financials are an advanced customization of the core Defensive rules, and so not supported by the free Classic Graham Screener.

Utilities and Financials for Enterprising Investors

The example above is based on Graham's own instructions for adjusting the Defensive criteria for Utilities and Financials. The Size in Assets and Equity : Debt filters could also be used — instead of Assets : Liabilities and Assets : Debt — to similarly adjust the criteria for Enterprising grade stocks, even though this was not specifically mentioned by Graham.


Hello,I've been searching a month which formula should I use to test the public utilities for their financial condition. The sentence 'the debt should not exceed twice the stock equity (at book value)' is whether just pasted without explanation or said to be ambiguous. What exactly is 'debt'? 'Short-Term Debt'? 'Long-term Debt'? (the only two values containing the term 'debt' within the gurufocus definitions section). And what about 'book value': 'Tangible Book Value' or simply 'book value'? I ended up building the following formula: 0 ≤ Total Liabilities/ (Total Assets - Intangible Assets - Total Liabilities) ≤ 2 but I have doubts... I have just the feeling that no one understand it and everybody is avoiding the problem....Could you please help me to solve the problem?

Hello Francesca,

Graham always uses specific terms such as net tangible assets, Long-term debt etc wherever applicable. So it should be safe to assume that Graham means Book Value and Total Liabilities here.

The [2 x Equity] ÷ Debt rating on Serenity uses:
2 x (Total Assets - Total Liabilities) ÷ Total Liabilities

So for a Public Utility to qualify as Defensive, it would need to have:
Equity:Debt > 100%