Tab #15: Benjamin Graham Valuation Model
Benjamin Graham's stock valuation method considers the interest rate environment, the earnings, and the future growth potential of a business to value a company. Because the last official version of Graham's formula came out in 1974, this sheet covers the original formula and a revised version that's more relevant to our current market environment. In either case, Graham's formula works best for companies with a positive and growing earnings per share (EPS) number. More specifics on this sheet are described below:
- Benjamin Graham's Original Valuation Formula
- This section shows Graham's original valuation formula from his "The Intelligent Investor" book. The only inputs you need to complete are the EPS growth rate and the margin of safety, everything else is automatically calculated. This model will then output the intrinsic share price, the buy price, and the current valuation.
- Benjamin Graham's Revised Valuation Formula
- This section shows Graham's revised valuation formula. The only inputs you need to complete are the EPS growth rate and the margin of safety. You can also toggle between the basic EPS or the diluted EPS, and have the option between using the default (revised version) P/E base no-growth option, or a P/E base no-growth company option that is based on the company's cost of equity. Everything else is automatically calculated.
- Benjamin Graham's Revised Valuation Sensitivity Analysis
- This section shows the company's basic EPS and diluted EPS growth, as well as a dynamic sensitivity analysis section based on the inputs to Graham's revised valuation formula. For this sensitivity analysis, you can adjust the P/E base no growth, EPS growth rate, growth multiplier, and margin of safety. This can be adjusted to fit your understanding of the business and to get a reasonable valuation buy price range.