DCF vs Graham Formula: Value Investing Methods Compared
Summary
DCF is a comprehensive forward-looking stock valuation model that projects future cash flows. The Graham formula is a simplified rule-of-thumb using EPS and book value. DCF offers more stock valuation precision; Graham offers speed and simplicity.
| Feature | DCF Analysis | Graham Formula |
|---|---|---|
| Creator | John Burr Williams (1938) | Benjamin Graham (1962) |
| Approach | Projects future free cash flows | Uses current EPS and book value |
| Formula | Sum of discounted future FCFs | √(22.5 × EPS × Book Value) |
| Inputs Needed | FCF, growth rate, WACC, terminal value | EPS and Book Value Per Share |
| Time to Calculate | 2-5 minutes with a tool | 10 seconds |
| Accuracy | Higher, but depends on assumptions | Rough estimate, misses growth |
| Growth Consideration | Explicitly modeled | Not directly considered |
| Best For | Growth and mature companies | Stable, asset-heavy value stocks |
Choose DCF Analysis if...
Use DCF stock valuation for thorough analysis of any company with predictable cash flows. It handles growth companies, different capital structures, and provides sensitivity analysis.
Choose Graham Formula if...
Use the Graham formula as a quick stock valuation screen for deep value stocks — especially useful for asset-heavy, low-growth companies where book value is meaningful.
Go beyond the Graham formula — try MiniValuator's DCF Calculator for a complete intrinsic stock valuation analysis.
Try MiniValuator Free