Accretion/Dilution analysis is a tool used in finance to measure the impact of a proposed merger or acquisition on a company’s earnings per share (EPS). The analysis is performed by comparing the pro forma EPS of the combined company to the EPS of the target company.
If the pro forma EPS is higher than the target company’s EPS, then the merger or acquisition is accretive to earnings and will likely be viewed positively by shareholders. If the pro forma EPS is lower than the target company’s EPS, then the merger or acquisition is dilutive to earnings and may not be viewed favorably by shareholders.
Accretion/dilution analysis is just one tool that should be considered when evaluating a proposed merger or acquisition. Other factors, such as the strategic fit of the two companies, should also be taken into account.