How do you calculate long-term growth for the Graham Formula?

To calculate the long-term growth rate, we are creating a least squares regression of the last 6 years earnings per share + 4 years earnings per share forecast and using the slope of best fit as the apparent long term growth rate.

If we do have a long term (5 year) growth forecast from the broker consensus estimates then we average this with our own calculation.

We also apply a 20% cap on all growth rates, as history has shown that companies are very, very rarely able to sustain 30% growth rates for 7 years on the trot, e.g. for ASOS.

We will continue to evolve this approach.

It's worth emphasising that the Implied Margin of Safety / Valuation models are marked 'beta' at this stage. We are improving the global assumptions that we are applying to all companies and believe they are best used as a guide at this stage, which users can tweak based on their own assumptions.

Due to the very sensitive nature of valuation models, slight changes to inputs can create big swings in resulting valuations. It's best to look at valuation across multiple models rather than focus on one, and certain valuation models will work better for some companies than others.