Benjamin Graham's updated Intrinsic Value formula

All warnings that Graham gave with the original formula would apply to the updated one as well, which is simply a passing reference that Graham supposedly made in a later interview.

The Original Formula

The formula actually published by Graham is:

Intrinsic Value = EPS x (8.5 + 2xGrowth)

Benjamin Graham, Chapter 11: Security Analysis for the Lay Investor, The Intelligent Investor.

The article Understanding The Benjamin Graham Formula Correctly includes images of all relevant pages from Graham's books, and his warnings about this formula.

The Updated Formula

However, several analysts refer to the following as Benjamin Graham's updated Intrinsic Value formula:

V = {EPS x (8.5 + 2g) x 4.4} / Y


V: Intrinsic Value of the company,
EPS: the company's last 12-month earnings per share,
8.5: the appropriate P-E ratio for a no-growth company as proposed by Graham,
g: the company's long-term (five years) earnings growth estimate,
4.4: the average yield of high-grade corporate bonds,
Y: the current yield on 20 year AAA corporate bonds.


Given below is a screenshot from a transcript of the interview — The Decade 1965-1974: Its significance for Financial Analysts — where Graham supposedly mentions the adjustment.

Value = Earnings times the sum of 37% plus 8.8 G, divided by the AAA rate

A few paragraphs later, he can again be seen expressing several misgivings about such simplistic formulas.

By my own rather strict quantitative criteria, Firestone would pass the financial strength test by a modest margin.

Particularly note that part where Graham says "By my own rather strict quantitative criteria". Here he is referring to his stock selection framework published in The Intelligent Investor, which includes elaborate tests for financial strength and other factors.

The Intelligent Investor

Lastly, please note that this updated formula is not from a published source. Here's what Graham actually writes on the topic of interest rates along with the original formula in The Intelligent Investor:

We should point out that any “scientific,” or at least reasonably dependable, stock evaluation based on anticipated future results must take future interest rates into account. A given schedule of expected earnings, or dividends, would have a smaller present value if we assume a higher than if we assume a lower interest structure. Such assumptions have always been difficult to make with any degree of confidence, and the recent violent swings in long-term interest rates render forecasts of this sort almost presumptuous. Hence we have retained our old formula above, simply because no new one would appear more plausible.

Benjamin Graham, Chapter 11: Security Analysis for the Lay Investor, The Intelligent Investor.

So again, Graham never intended this formula — or any of its variations — to be used for stock selection by his readers. He was simply advising users of all such simplistic valuation methods to include all the requisite tests for financial soundness and a Margin of Safety.

Graham Resources