1. Graham Number
GN = √(22.5 × EPS × Book Value)
Benjamin Graham's classic valuation shortcut. Combines earnings and book value. Limited for asset-light companies with low book value from share buybacks.
2. Owner Earnings
Fair Value = OE/Share × Multiplier
ROE > 20% & D/E < 1 → 18x | ROE > 15% → 15x | ROE > 10% → 12x | else → 10x
Warren Buffett's preferred measure. OE = Net Income + D&A − CapEx − WC Needs. Shows true cash generated for owners.
3. DCF Model
IV = Σ(OE_n / 1.10^n) + TV
Growth = min(ROE × 0.5, 15%) | TV = Year 10 OE × 12
Projects owner earnings 10 years into the future and discounts at 10%. Most comprehensive valuation method.
4. Graham Formula
V = EPS × (8.5 + 2g) × 4.4 / Y
8.5 = base P/E | g = growth rate | Y = 10Y Treasury yield
From The Intelligent Investor. Adjusts for company growth and current interest rates. Quick conservative estimate.
5. Dividend Discount
V = DPS / (r − g)
DPS = annual dividend | r = 10% required return | g = 5% growth
Values stock based on future dividends. Best for mature dividend payers like KO, PG, JNJ. Not applicable for low/no dividend stocks.
6. ROE & Growth
V = EPS × (1+g)^10 / 1.10^10 × 15
g = ROE × (1 − Payout Ratio), CAPPED at 15%
Projects earnings growth based on reinvestment efficiency. Uses sustainable growth rate with 15x terminal P/E.
Margin of Safety
Buy Price = Fair Value × 0.75
Always buy 25% below fair value. This protects against estimation errors and unexpected events — the core principle of value investing.