**Help with Graham's Intrinsic Value Formula**
I have been re-reading through The Intelligent Investor for the past few days and I came accross Graham's infamous Intrinsic Value Formula. For those of you who don't know it, it is as follows:
Intrinsic Value= (Normal) Earnings x (8.5 plus twice the expected annual growth rate)
One of the examples Graham points out in a chart is Xerox. Via this formula Graham shows Xerox with an estimated annual growth rate of 32.4% in 1963. For the life of me I can not figure out how he came to this figure. Graham supplies a chart which shows Xerox, in 1963, of having a P/E ratio of 25 and EPS of $.38.
Can anyone shed some light on how graham figured out the Projected Growth Rate? If you have the book, this formula and chart is on pg.295-296(4th revised edition, edited by Jason Zweig)
And just to verify, when Graham refers to "Annual Growth Rate" that is in relation to the Earnings per share, correct?
Where am I going wrong :S?!
Thank you everyone! *
Last edited by Veneratio; Aug 8, 2008 at 6:37pm.
* |