Graham-Style Formula
Benjamin Graham was known for his thorough financial analysis of companies, but he also experimented with many simple rules of thumb. Here is a valuation formula adapted from The Intelligent Investor:
P/E = 8.5 + 2G where P/E is the fair P/E ratio, and G is the earnings growth rate.
The idea is that you get a formula that's simple enough to use in the privacy of your own skull, without needing a computer or calculator.
There is a drawback with this formula: as written, it gives answers that are on the high side. But the good news is that with some modifications, this style formula can give you a very fair estimate of the real answer. It's almost as simple as the PEG ratio, and much more accurate.
This calculator lets you check the accuracy of the formula. (It's initialized with a more conservative version of the formula than what's given above.)
Benjamin Graham was known for his thorough financial analysis of companies, but he also experimented with many simple rules of thumb. Here is a valuation formula adapted from The Intelligent Investor:
P/E = 8.5 + 2G where P/E is the fair P/E ratio, and G is the earnings growth rate.
The idea is that you get a formula that's simple enough to use in the privacy of your own skull, without needing a computer or calculator.
There is a drawback with this formula: as written, it gives answers that are on the high side. But the good news is that with some modifications, this style formula can give you a very fair estimate of the real answer. It's almost as simple as the PEG ratio, and much more accurate.
This calculator lets you check the accuracy of the formula. (It's initialized with a more conservative version of the formula than what's given above.)
