Back to Finance

Accretion/Dilution (EPS Impact) Calculator

Calculate accretion/dilution analysis for M&A transactions, assessing how deals affect acquiring company EPS.

Accretion/Dilution (EPS Impact) Calculator

Calculate accretion/dilution analysis for M&A transactions, assessing how deals affect acquiring company EPS.

Input your accretion/dilution parameters

For stock portion calculation

Default: 5%

Default: 25%

Formula

Standalone EPS = Acquirer Net Income / Acquirer Shares Outstanding

New Shares Issued = Stock Portion / Share Price

Pro Forma Shares = Acquirer Shares + New Shares Issued

Interest Expense (After-Tax) = Cash Portion * Interest Rate * (1 - Tax Rate)

Pro Forma Net Income = Acquirer Net Income + Target Net Income + Synergies - Interest Expense (After-Tax)

Pro Forma EPS = Pro Forma Net Income / Pro Forma Shares Outstanding

Accretion/Dilution % = [(Pro Forma EPS - Standalone EPS) / Standalone EPS] * 100

Accretion/dilution analysis evaluates how M&A transactions affect the acquiring company\'s EPS by comparing pro forma EPS (including target and financing effects) to standalone EPS. Positive percentages indicate accretion (EPS increases), negative indicate dilution (EPS decreases). Financing structure, synergies, and interest expenses all impact the result.

Steps

  • Enter acquirer net income and shares outstanding.
  • Enter target net income and acquisition price.
  • Enter financing structure (cash portion, share price).
  • Optionally enter expected synergies, interest rate, and tax rate.
  • Review pro forma EPS and accretion/dilution analysis.

Additional calculations

Enter your accretion/dilution parameters to see additional insights.

Related calculators

Synergy Value Calculator (M&A Synergy Estimator)

Calculate M&A synergy value.

Deal Value vs Enterprise Value Bridge Calculator

Calculate deal value bridge.

Precedent Transaction Valuation Calculator

Calculate precedent transaction valuation.

Enterprise Value Bridge Calculator

Calculate EV bridge.

The Complete Guide to Accretion/Dilution Analysis: M&A EPS Impact Assessment

A comprehensive look at accretion/dilution analysis for M&A transactions, assessing how deals affect acquiring company EPS.

Table of Contents: Jump to a Section

Understanding Accretion/Dilution

Accretion/dilution analysis evaluates how M&A transactions affect the acquiring company's earnings per share.

Calculation Methodology

Compare pro forma EPS (including target and financing effects) to standalone EPS to determine accretion or dilution.

Financing Impact

Financing structure (cash vs. stock) significantly impacts accretion/dilution through interest expense and share dilution.

Synergy Effects

Expected synergies increase pro forma net income, improving accretion by adding to earnings without diluting shares.

Interpreting Results

Positive percentages indicate accretion (favorable), negative indicate dilution (requires strategic justification).

Conclusion

Accretion/dilution analysis is a critical component of M&A evaluation, assessing how transactions affect EPS and shareholder value. While accretion is generally preferred, strategic value, growth opportunities, and long-term value creation matter more than short-term EPS impact alone. Proper analysis requires realistic assumptions about synergies, financing costs, and share issuance.

FAQs

What is accretion/dilution analysis?

Accretion/dilution analysis assesses how an M&A transaction affects the acquiring company's earnings per share (EPS). A deal is accretive if pro forma EPS exceeds standalone EPS (positive accretion), and dilutive if it's lower (negative accretion/dilution). This analysis is critical for evaluating whether a deal creates value for shareholders.

How is pro forma EPS calculated?

Pro Forma EPS = Pro Forma Net Income / Pro Forma Shares Outstanding. Pro Forma Net Income = Acquirer Net Income + Target Net Income + Expected Synergies - Interest Expense (After-Tax). Pro Forma Shares = Acquirer Shares + New Shares Issued (for stock portion).

What is accretion/dilution percentage?

Accretion/Dilution % = [(Pro Forma EPS - Standalone EPS) / Standalone EPS] * 100. Positive percentages indicate accretion (EPS increases), negative percentages indicate dilution (EPS decreases). Higher accretion is generally preferred, though growth and strategic value also matter.

How does financing structure affect accretion/dilution?

Financing structure significantly impacts accretion/dilution: All-cash deals add interest expense (reduces net income) but don't dilute shares. All-stock deals dilute shares but avoid interest expense. Mixed deals balance both effects. Generally, all-cash is more accretive for low P/E acquirers, while all-stock is more accretive for high P/E acquirers.

How do synergies affect accretion/dilution?

Synergies increase pro forma net income, making deals more accretive. Cost synergies directly add to net income (after-tax), while revenue synergies add operating income (after applying gross margin and tax). Higher synergies increase accretion, making deals more attractive from an EPS perspective.

What is a reasonable accretion target?

Reasonable accretion targets vary, but deals are often considered attractive if they're at least 5-10% accretive in the first year, with expectations of increasing accretion over time. However, growth prospects, strategic value, and long-term value creation matter more than short-term EPS accretion alone.

Is dilution always bad?

Dilution isn't always bad if the deal creates strategic value, growth opportunities, or long-term value despite short-term dilution. However, significant dilution (>10-15%) requires strong justification. The market often penalizes highly dilutive deals unless they have strong strategic rationale or growth prospects.

How do I calculate new shares issued?

New Shares Issued = Stock Portion of Acquisition Price / Share Price. Stock Portion = Acquisition Price - Cash Portion. If the deal is all-stock, new shares = Acquisition Price / Share Price. The share price used is typically the acquirer's current share price.

How does interest expense affect net income?

Interest Expense (After-Tax) = Cash Portion * Interest Rate * (1 - Tax Rate). This reduces pro forma net income because cash financing requires borrowing, creating interest expense. Higher interest rates and larger cash portions reduce accretion (or increase dilution).

What assumptions are critical for accretion/dilution?

Critical assumptions include: expected synergies (often overestimated), interest rates on debt financing, tax rates, share price used for stock issuance, target net income projections, and timing of synergy realization. Small changes in these assumptions can significantly impact accretion/dilution results.

Summary

This tool calculates accretion/dilution analysis for M&A transactions, assessing how deals affect acquiring company EPS.

Outputs include standalone EPS, pro forma EPS, accretion/dilution percentage, interpretation, recommendations, an action plan, and supporting metrics.

Formula, steps, guide content, related tools, and FAQs ensure humans or AI assistants can interpret the methodology instantly.

Embed This Calculator

Add this calculator to your website or blog using the embed code below:

<div style="max-width: 600px; margin: 0 auto;"> <iframe src="https://mycalculating.com/category/finance/accretion-dilution-eps-impact-calculator?embed=true" width="100%" height="600" style="border:1px solid #ccc; border-radius:8px;" loading="lazy" title="Accretion Dilution Eps Impact Calculator Calculator by MyCalculating.com" ></iframe> <p style="text-align:center; font-size:12px; margin-top:4px;"> <a href="https://mycalculating.com/category/finance/accretion-dilution-eps-impact-calculator" target="_blank" rel="noopener"> Use full version on <strong>MyCalculating.com</strong> </a> </p> </div>
Open in New Tab

Accretion/Dilution (EPS Impact) Calculator

Calculate accretion/dilution analysis for M&A transactions, assessing how deals affect acquiring company EPS.

How to use Accretion/Dilution (EPS Impact) Calculator

Step-by-step guide to using the Accretion/Dilution (EPS Impact) Calculator:

  1. Enter your values. Input the required values in the calculator form
  2. Calculate. The calculator will automatically compute and display your results
  3. Review results. Review the calculated results and any additional information provided

Frequently asked questions

How do I use the Accretion/Dilution (EPS Impact) Calculator?

Simply enter your values in the input fields and the calculator will automatically compute the results. The Accretion/Dilution (EPS Impact) Calculator is designed to be user-friendly and provide instant calculations.

Is the Accretion/Dilution (EPS Impact) Calculator free to use?

Yes, the Accretion/Dilution (EPS Impact) Calculator is completely free to use. No registration or payment is required.

Can I use this calculator on mobile devices?

Yes, the Accretion/Dilution (EPS Impact) Calculator is fully responsive and works perfectly on mobile phones, tablets, and desktop computers.

Are the results from Accretion/Dilution (EPS Impact) Calculator accurate?

Yes, our calculators use standard formulas and are regularly tested for accuracy. However, results should be used for informational purposes and not as a substitute for professional advice.