M&AInvestment Banking6 min
The accretion / dilution calculator, explained
When one company buys another, the first question a banker asks is simple: does this deal make our earnings per share go up or down? That's accretion/dilution. Up is accretive, down is dilutive. Here's how the math works.
EPS is net income divided by shares outstanding. A merger changes both the top (combined earnings) and the bottom (new shares, if you pay with stock) — and adds financing costs. The calculator nets all of that out.
The three moving parts
- Combined net income. Add the acquirer's and target's net income, plus any synergies.
- Financing cost. Cash deals lose interest income; debt deals add interest expense; both reduce combined earnings (after tax).
- New share count. If you pay with stock, you issue new shares — diluting the denominator.
The calculation
Pro forma EPS = (combined net income − after-tax financing cost) ÷ (acquirer shares + new shares issued)
Compare that to the acquirer's standalone EPS:
• Pro forma EPS > standalone → accretive
• Pro forma EPS < standalone → dilutive
The rule of thumb
| Financing | Tends to be |
|---|
| Cash / cheap debt | Accretive (no new shares) |
| Stock, target P/E < acquirer P/E | Accretive |
| Stock, target P/E > acquirer P/E | Dilutive |
Run a deal live. The FundSim investment-banking simulator includes an interactive M&A model — set the offer price, cash/stock/debt mix, and synergies, and see accretion/dilution and pro forma EPS recompute instantly. Free, no Excel.
Open the free M&A calculator →
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