{
  "id": 53419,
  "date": "2022-08-31T13:19:23",
  "date_gmt": "2022-08-31T17:19:23",
  "guid": { "rendered": "https:\/\/finance-able.com\/?p=53419" },
  "modified": "2025-12-21T16:57:09",
  "modified_gmt": "2025-12-21T21:57:09",
  "slug": "accretion-dilution",
  "status": "publish",
  "type": "post",
  "link": "https:\/\/finance-able.com\/accretion-dilution\/",
  "title": { "rendered": "Accretion \/ Dilution \u2013 The Ultimate Guide" },
  "content": {
    "rendered": "\n<p style=\"font-size:18.5px\"><strong>Master Accretion \/ Dilution<\/strong> so you can ace your <a href=\"https:\/\/finance-able.com\/investment-banking-career-path\/\"><strong><mark style=\"background-color:rgba(0, 0, 0, 0)\" class=\"has-inline-color has-vivid-cyan-blue-color\">Investment Banking<\/mark><\/strong><\/a>, <a href=\"https:\/\/finance-able.com\/private-equity-vs-venture-capital\/\"><strong><mark style=\"background-color:rgba(0, 0, 0, 0)\" class=\"has-inline-color has-vivid-cyan-blue-color\">Private Equity<\/mark><\/strong><\/a>, and <a href=\"https:\/\/finance-able.com\/what-is-a-hedge-fund\/\"><strong><mark style=\"background-color:rgba(0, 0, 0, 0)\" class=\"has-inline-color has-vivid-cyan-blue-color\">Investment Management<\/mark><\/strong><\/a> interviews. We\u2019ll break everything down with a <strong>simple 3-Step Framework <\/strong>as well as tips on how to <strong>avoid common pitfalls<\/strong>. Let&#8217;s jump in!<\/p>\n\n\n\n<p style=\"font-size:18.5px\">In this article, you will learn:<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li><strong>Accretion \/ Dilution<\/strong>: <strong>what<\/strong> it is, <strong>why<\/strong> it matters, and <strong>how<\/strong> Analysts use it on the job.<\/li>\n\n\n\n<li>How to Calculate Accretion\/ Dilution in <strong>Three Easy Steps<\/strong>.<\/li>\n\n\n\n<li>Common Accretion \/ Dilution<strong> Interview Questions<\/strong>.<\/li>\n\n\n\n<li>How Accretion \/ Dilution impacts <strong>Merger Models.<\/strong><\/li>\n\n\n\n<li>The meaning of <strong>&#8216;Cash&#8217; Accretion \/ Dilution<\/strong>.<\/li>\n\n\n\n<li>A <strong>real-life example<\/strong> of how <strong>Morgan Stanley highlighted Accretion \/ Dilution<\/strong> when it purchased <strong>E*TRADE<\/strong> for $13 billion.<\/li>\n<\/ul>\n\n\n\n<p class=\"yoast-reading-time__wrapper\"><span class=\"yoast-reading-time__icon\"><svg aria-hidden=\"true\" focusable=\"false\" data-icon=\"clock\" width=\"20\" height=\"20\" fill=\"none\" stroke=\"currentColor\" style=\"display:inline-block;vertical-align:-0.1em\" role=\"img\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" viewBox=\"0 0 24 24\"><path stroke-linecap=\"round\" stroke-linejoin=\"round\" stroke-width=\"2\" d=\"M12 8v4l3 3m6-3a9 9 0 11-18 0 9 9 0 0118 0z\"><\/path><\/svg><\/span><span class=\"yoast-reading-time__spacer\" style=\"display:inline-block;width:1em\"><\/span><span class=\"yoast-reading-time__descriptive-text\">Estimated reading time: <\/span><span class=\"yoast-reading-time__reading-time\">16<\/span><span class=\"yoast-reading-time__time-unit\"> minutes<\/span><\/p>\n\n\n\n\n\n<div style=\"height:70px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"h-tl-dr\" style=\"font-size:35px\"><strong>TL; DR<\/strong><\/h2>\n\n\n\n<ul class=\"wp-block-list\">\n<li>Accretion \/ Dilution typically <strong>shows the direction of Earnings Per Share (EPS)<\/strong> for a <strong>Public Company<\/strong> when it buys another Company.<\/li>\n\n\n\n<li>An Accretion \/ Dilution analysis <strong>weighs the benefits and costs<\/strong> of an M&amp;A deal.<\/li>\n\n\n\n<li><strong>In an Accretive Deal<\/strong>, the Company&#8217;s EPS <strong>increases<\/strong> after the M&amp;A deal.<\/li>\n\n\n\n<li><strong>In a Dilutive Deal<\/strong>, the Company&#8217;s EPS <strong>decreases<\/strong> after the M&amp;A deal.<\/li>\n\n\n\n<li><strong>CEOs and Boards communicate Accretion \/ Dilution <\/strong>to signal that an M&amp;A deal is <strong>good for Shareholders<\/strong>.<\/li>\n<\/ul>\n\n\n\n<div style=\"height:40px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<div class=\"wp-block-columns containerwidth is-layout-flex wp-container-core-columns-is-layout-9d6595d7 wp-block-columns-is-layout-flex\">\n<div class=\"wp-block-column is-layout-flow wp-block-column-is-layout-flow\" style=\"flex-basis:100%\"><div class=\"kb-row-layout-wrap kb-row-layout-id53419_3187c1-d3 alignnone wp-block-kadence-rowlayout\"><div class=\"kt-row-column-wrap kt-has-1-columns kt-row-layout-equal kt-tab-layout-inherit kt-mobile-layout-row kt-row-valign-top\">\n\n<div class=\"wp-block-kadence-column kadence-column53419_fe797e-71 inner-column-1\"><div class=\"kt-inside-inner-col\">\n<h2 class=\"wp-block-heading\" id=\"h-want-to-learn-more-about-finance\" style=\"font-size:35px\"><strong>Want To Learn More About Finance?<\/strong> <\/h2>\n\n\n\n<p style=\"font-size:18px\"><strong>Ramp up faster with all of our (free) deep-dive articles in our<\/strong> <a href=\"https:\/\/finance-able.com\/analyst-starter-kit\/\" target=\"_blank\" rel=\"noreferrer noopener\"><strong><span class=\"has-inline-color has-vivid-cyan-blue-color\">Analyst Starter Kit<\/span><\/strong><\/a>:<\/p>\n\n\n<div class=\" wp-block-kadence-portfoliogrid kb-blocks-portfolio-loop-block alignnone kb-portfolio-loop53419_22f204-9a kb-portfolio-grid-layout-carousel kt-blocks-carousel \"><div class=\" kb-portfolio-grid-layout-carousel-wrap kt-post-grid-layout-carousel-wrap kt-carousel-arrowstyle-whiteondark kt-carousel-dotstyle-dark splide kb-blocks-portfolio-img-hover-zoomout kb-blocks-portfolio-content-hover-zoomin\" data-columns-xxl=\"3\" data-columns-xl=\"3\" data-columns-md=\"3\" data-columns-sm=\"2\" data-columns-xs=\"1\" data-columns-ss=\"1\" data-slider-center-mode=\"false\" data-slider-type=\"carousel\" data-slider-anim-speed=\"400\" data-slider-scroll=\"1\" data-slider-dots=\"true\" data-slider-arrows=\"true\" data-slider-hover-pause=\"false\" data-slider-auto=\"true\" data-slider-center-mode=\"false\" data-slider-speed=\"7000\" data-show-pause-button=\"false\" data-slider-gap=\"30\" data-slider-gap-tablet=\"30\" data-slider-gap-mobile=\"30\" data-slider-gap-unit=\"px\" data-item-selector=\".kb-portfolio-masonry-item\"><div class=\"kadence-splide-slider-init splide__track\"><ul><li class=\"kb-portfolio-slider-item kb-slide-item\"><div class=\"kb-blocks-portfolio-grid-item\"><div class=\"kb-blocks-portfolio-grid-item-inner-wrap kb-feat-image-align-none\"><div class=\"kadence-portfolio-image\"><div class=\"kadence-portfolio-image-intrisic kt-image-ratio-nocrop\" style=\"padding-bottom:56.25%\"><div class=\"kadence-portfolio-image-inner-intrisic\"><img loading=\"lazy\" decoding=\"async\" width=\"1024\" height=\"576\" src=\"https:\/\/finance-able.com\/wp-content\/uploads\/2023\/03\/unlevered-beta-formula-lightbulb-1024x576.png\" class=\"attachment-large size-large wp-post-image\" alt=\"An image of a lightbulb with the text Unlevered Beta Formula\" srcset=\"https:\/\/finance-able.com\/wp-content\/uploads\/2023\/03\/unlevered-beta-formula-lightbulb-1024x576.png 1024w, https:\/\/finance-able.com\/wp-content\/uploads\/2023\/03\/unlevered-beta-formula-lightbulb-300x169.png 300w, https:\/\/finance-able.com\/wp-content\/uploads\/2023\/03\/unlevered-beta-formula-lightbulb-768x432.png 768w, https:\/\/finance-able.com\/wp-content\/uploads\/2023\/03\/unlevered-beta-formula-lightbulb.png 1280w\" sizes=\"auto, (max-width: 1024px) 100vw, 1024px\" \/><\/div><\/div><\/div><div class=\"kb-portfolio-grid-item-inner\"><a href=\"https:\/\/finance-able.com\/unlevered-beta-formula\/\" aria-label=\"Unlevered Beta Formula &#8211; Ultimate Guide\" class=\"portfolio-hover-item-link\"><\/a><div class=\"kb-portfolio-overlay-color\"><\/div><div class=\"kb-portfolio-overlay-border\"><\/div><div class=\"kb-portfolio-content-item-inner\"><h3 class=\"entry-title kb-portfolio-loop-title\">Unlevered Beta Formula &#8211; Ultimate Guide<\/h3><\/div><\/div><\/div><\/div><\/li><li class=\"kb-portfolio-slider-item kb-slide-item\"><div class=\"kb-blocks-portfolio-grid-item\"><div class=\"kb-blocks-portfolio-grid-item-inner-wrap kb-feat-image-align-none\"><div class=\"kadence-portfolio-image\"><div class=\"kadence-portfolio-image-intrisic kt-image-ratio-nocrop\" style=\"padding-bottom:56.25%\"><div class=\"kadence-portfolio-image-inner-intrisic\"><img loading=\"lazy\" decoding=\"async\" width=\"1024\" height=\"576\" src=\"https:\/\/finance-able.com\/wp-content\/uploads\/2023\/01\/lightbulb-purchase-price-allocation-1024x576.png\" class=\"attachment-large size-large wp-post-image\" alt=\"A lightbulb and the words Purchase Price Allocation\" srcset=\"https:\/\/finance-able.com\/wp-content\/uploads\/2023\/01\/lightbulb-purchase-price-allocation-1024x576.png 1024w, https:\/\/finance-able.com\/wp-content\/uploads\/2023\/01\/lightbulb-purchase-price-allocation-300x169.png 300w, https:\/\/finance-able.com\/wp-content\/uploads\/2023\/01\/lightbulb-purchase-price-allocation-768x432.png 768w, https:\/\/finance-able.com\/wp-content\/uploads\/2023\/01\/lightbulb-purchase-price-allocation.png 1280w\" sizes=\"auto, (max-width: 1024px) 100vw, 1024px\" \/><\/div><\/div><\/div><div class=\"kb-portfolio-grid-item-inner\"><a href=\"https:\/\/finance-able.com\/purchase-price-allocation\/\" aria-label=\"Purchase Price Allocation in 4 Steps &#8211; The Ultimate Guide\" class=\"portfolio-hover-item-link\"><\/a><div class=\"kb-portfolio-overlay-color\"><\/div><div class=\"kb-portfolio-overlay-border\"><\/div><div class=\"kb-portfolio-content-item-inner\"><h3 class=\"entry-title kb-portfolio-loop-title\">Purchase Price Allocation in 4 Steps &#8211; The Ultimate Guide<\/h3><\/div><\/div><\/div><\/div><\/li><li class=\"kb-portfolio-slider-item kb-slide-item\"><div class=\"kb-blocks-portfolio-grid-item\"><div class=\"kb-blocks-portfolio-grid-item-inner-wrap kb-feat-image-align-none\"><div class=\"kadence-portfolio-image\"><div class=\"kadence-portfolio-image-intrisic kt-image-ratio-nocrop\" style=\"padding-bottom:45.138888888889%\"><div class=\"kadence-portfolio-image-inner-intrisic\"><img loading=\"lazy\" decoding=\"async\" width=\"720\" height=\"325\" src=\"https:\/\/finance-able.com\/wp-content\/uploads\/2021\/06\/0-Walk-Me-Through-a-DCF-Definitive-Guide-Cover-1.png\" class=\"attachment-large size-large wp-post-image\" alt=\": A stick figure answering an interview question with the title text &#039;Walk Me Through an LBO&#039; below\" srcset=\"https:\/\/finance-able.com\/wp-content\/uploads\/2021\/06\/0-Walk-Me-Through-a-DCF-Definitive-Guide-Cover-1.png 720w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/06\/0-Walk-Me-Through-a-DCF-Definitive-Guide-Cover-1-300x135.png 300w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/06\/0-Walk-Me-Through-a-DCF-Definitive-Guide-Cover-1-400x181.png 400w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/06\/0-Walk-Me-Through-a-DCF-Definitive-Guide-Cover-1-624x282.png 624w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/06\/0-Walk-Me-Through-a-DCF-Definitive-Guide-Cover-1-50x23.png 50w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/06\/0-Walk-Me-Through-a-DCF-Definitive-Guide-Cover-1-100x45.png 100w\" sizes=\"auto, (max-width: 720px) 100vw, 720px\" \/><\/div><\/div><\/div><div class=\"kb-portfolio-grid-item-inner\"><a href=\"https:\/\/finance-able.com\/walk-me-through-a-dcf\/\" aria-label=\"Walk Me Through a DCF in 5 Steps &#8211; The Ultimate Guide\" class=\"portfolio-hover-item-link\"><\/a><div class=\"kb-portfolio-overlay-color\"><\/div><div class=\"kb-portfolio-overlay-border\"><\/div><div class=\"kb-portfolio-content-item-inner\"><h3 class=\"entry-title kb-portfolio-loop-title\">Walk Me Through a DCF in 5 Steps &#8211; The Ultimate Guide<\/h3><\/div><\/div><\/div><\/div><\/li><\/ul><\/div><div class=\"clearfix\" style=\"clear:both\"><\/div><\/div><\/div><\/div><\/div>\n\n<\/div><\/div><\/div>\n<\/div>\n\n\n\n<div style=\"height:50px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<h2 class=\"wp-block-heading\" style=\"font-size:35px\"><strong>What is Accretion \/ Dilution?<\/strong><\/h2>\n\n\n\n<div style=\"height:40px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n<div class=\"wp-block-image\">\n<figure class=\"aligncenter size-full\"><img loading=\"lazy\" decoding=\"async\" width=\"873\" height=\"473\" src=\"https:\/\/finance-able.com\/wp-content\/uploads\/2021\/07\/stick-figure-confused-about-EBITDA.png\" alt=\"A stick figure sitting at a desk confused about Accretion\/Dilution and how it is used in Finance\" class=\"wp-image-53484\" srcset=\"https:\/\/finance-able.com\/wp-content\/uploads\/2021\/07\/stick-figure-confused-about-EBITDA.png 873w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/07\/stick-figure-confused-about-EBITDA-300x163.png 300w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/07\/stick-figure-confused-about-EBITDA-768x416.png 768w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/07\/stick-figure-confused-about-EBITDA-624x338.png 624w\" sizes=\"auto, (max-width: 873px) 100vw, 873px\" \/><\/figure>\n<\/div>\n\n\n<div style=\"height:40px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<p style=\"font-size:18.5px\"><strong>Accretion \/ Dilution<\/strong> typically measures the <strong>impact of an M&amp;A deal<\/strong> on a <strong>Public Company&#8217;s<\/strong> <strong>Earnings Per Share<\/strong>.<\/p>\n\n\n\n<div style=\"height:40px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n<div class=\"wp-block-image\">\n<figure class=\"aligncenter size-full\"><img loading=\"lazy\" decoding=\"async\" width=\"840\" height=\"142\" src=\"https:\/\/finance-able.com\/wp-content\/uploads\/2021\/07\/accretion-dilution-key-factors.png\" alt=\"An image showing the key factors around Accretion \/ Dilution\" class=\"wp-image-53473\" srcset=\"https:\/\/finance-able.com\/wp-content\/uploads\/2021\/07\/accretion-dilution-key-factors.png 840w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/07\/accretion-dilution-key-factors-300x51.png 300w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/07\/accretion-dilution-key-factors-768x130.png 768w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/07\/accretion-dilution-key-factors-624x105.png 624w\" sizes=\"auto, (max-width: 840px) 100vw, 840px\" \/><\/figure>\n<\/div>\n\n\n<div style=\"height:40px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<p style=\"font-size:18.5px\">In short, <strong>Accretive<\/strong> means the <strong>benefits of an M&amp;A deal outweigh the costs<\/strong> for an overall <strong>positive impact<\/strong> to shareholders.<\/p>\n\n\n\n<p style=\"font-size:18.5px\"><strong>Dilutive<\/strong> means the <strong>costs of an M&amp;A deal outweigh the benefits<\/strong> for an overall <strong>negative impact<\/strong> to shareholders.<\/p>\n\n\n\n<div style=\"height:40px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n<div class=\"wp-block-image\">\n<figure class=\"aligncenter size-full\"><img loading=\"lazy\" decoding=\"async\" width=\"661\" height=\"306\" src=\"https:\/\/finance-able.com\/wp-content\/uploads\/2021\/07\/accretive-vs-dilutive.png\" alt=\"An image explaining the meaning of accretive vs dilutive on EPS\" class=\"wp-image-53474\" srcset=\"https:\/\/finance-able.com\/wp-content\/uploads\/2021\/07\/accretive-vs-dilutive.png 661w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/07\/accretive-vs-dilutive-300x139.png 300w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/07\/accretive-vs-dilutive-624x289.png 624w\" sizes=\"auto, (max-width: 661px) 100vw, 661px\" \/><\/figure>\n<\/div>\n\n\n<div style=\"height:20px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<p style=\"font-size:18.5px\">Read on to learn how <strong>Investment Bankers and Company CEOs use Accretion \/ Dilution<\/strong> to <strong>measure the attractiveness of M&amp;A deals<\/strong>.<\/p>\n\n\n\n<div style=\"height:70px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<h2 class=\"wp-block-heading\" style=\"font-size:35px\"><strong>Why Does Accretion \/ Dilution Matter?<\/strong><\/h2>\n\n\n\n<p style=\"font-size:18.5px\"><strong>A<em>s a company&#8217;s Earnings Per Share (EPS) grows, its share price typically follows<\/em>.<\/strong><\/p>\n\n\n\n<p style=\"font-size:18.5px\">As a result, <strong>Shareholders&#8217;<\/strong> <strong>want<\/strong> <strong>EPS to trend upward<\/strong> over time.<\/p>\n\n\n\n<p style=\"font-size:18.5px\"><strong>Shareholders prefer an Accretive Acquisition<\/strong>, especially if the Accretion is significant and immediate (ideally within 1-2 years).<\/p>\n\n\n\n<p style=\"font-size:18.5px\">On the flip side, a <strong>deal that results in EPS Dilution may disappoint shareholders<\/strong>.<\/p>\n\n\n\n<p style=\"font-size:18.5px\">CEOs are ultimately responsible to Shareholders, so Accretion \/ Dilution is an <strong>established metric for communicating that an M&amp;A deal is positive for shareholders<\/strong>.<\/p>\n\n\n\n<p style=\"font-size:18.5px\">CEOs that fail to communicate the benefits of an M&amp;A deal well <strong><em>can even lose their jobs<\/em><\/strong>!<\/p>\n\n\n\n<div style=\"height:40px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n<div class=\"wp-block-image\">\n<figure class=\"aligncenter size-large\"><img loading=\"lazy\" decoding=\"async\" width=\"1024\" height=\"198\" src=\"https:\/\/finance-able.com\/wp-content\/uploads\/2021\/07\/shareholders-CEO-Investment-BankersFA-1024x198.png\" alt=\"An images showing the chain from Shareholders to CEOs to Investment Bankers\" class=\"wp-image-53468\" srcset=\"https:\/\/finance-able.com\/wp-content\/uploads\/2021\/07\/shareholders-CEO-Investment-BankersFA-1024x198.png 1024w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/07\/shareholders-CEO-Investment-BankersFA-300x58.png 300w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/07\/shareholders-CEO-Investment-BankersFA-768x148.png 768w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/07\/shareholders-CEO-Investment-BankersFA-624x121.png 624w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/07\/shareholders-CEO-Investment-BankersFA.png 1030w\" sizes=\"auto, (max-width: 1024px) 100vw, 1024px\" \/><\/figure>\n<\/div>\n\n\n<div style=\"height:40px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<p style=\"font-size:18.5px\"><strong>It is a classic chain reaction<em>: Shareholders care about Accretion \/ Dilution, so CEOs care\u2026.CEOs care, so Investment Bankers care.<\/em><\/strong><\/p>\n\n\n\n<p style=\"font-size:18.5px\">And that is why Accretion \/ Dilution shows up in IB interviews.<\/p>\n\n\n\n<p style=\"font-size:18.5px\">Now that we have learned why this concept matters, <strong>learn a few key terms <\/strong>we will need to perform an Accretion \/ Dilution Analysis.<\/p>\n\n\n\n<div style=\"height:70px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<h2 class=\"wp-block-heading\" style=\"font-size:35px\"><strong>Accretion \/ Dilution \u2013 Target vs. Acquirer<\/strong><\/h2>\n\n\n\n<p style=\"font-size:18.5px\">Before diving in here, we must first <strong>clarify terms &#8216;Acquirer&#8217; and &#8216;Target.&#8217;&nbsp;<\/strong><\/p>\n\n\n\n<p style=\"font-size:18.5px\">The <strong>Company <em>buying<\/em><\/strong><em> or acquiring<\/em> another company is called the <strong><em><u>Acquirer<\/u><\/em><\/strong>.<\/p>\n\n\n\n<p style=\"font-size:18.5px\">The <strong>Company <\/strong><em><strong>being bought<\/strong> <\/em>or acquired is called the <strong><em><u>Target<\/u><\/em><\/strong>.<\/p>\n\n\n\n<div style=\"height:10px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n<div class=\"wp-block-image\">\n<figure class=\"aligncenter size-full\"><img loading=\"lazy\" decoding=\"async\" width=\"734\" height=\"227\" src=\"https:\/\/finance-able.com\/wp-content\/uploads\/2021\/07\/target-vs-acquirer.png\" alt=\"An image defining the target and acquirer in M&amp;A\" class=\"wp-image-53486\" srcset=\"https:\/\/finance-able.com\/wp-content\/uploads\/2021\/07\/target-vs-acquirer.png 734w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/07\/target-vs-acquirer-300x93.png 300w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/07\/target-vs-acquirer-624x193.png 624w\" sizes=\"auto, (max-width: 734px) 100vw, 734px\" \/><\/figure>\n<\/div>\n\n\n<div style=\"height:20px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<p style=\"font-size:18.5px\">Next, we need to learn about <strong>typical Accretion \/ Dilution Benefits and Costs<\/strong>.<\/p>\n\n\n\n<div style=\"height:80px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<h2 class=\"wp-block-heading\" style=\"font-size:35px\"><strong>Accretion \/ Dilution Benefits &amp; Costs<\/strong><\/h2>\n\n\n<!-- This site is converting visitors into subscribers and customers with OptinMonster - https:\/\/optinmonster.com :: Campaign Title: Accretion \/ Dilution - Obfuscation -->\n<div id=\"om-tb6oxwvn4wbkttsdhovr-holder\"><\/div>\n<script>(function(d,u,ac){var s=d.createElement('script');s.type='text\/javascript';s.src='https:\/\/a.omappapi.com\/app\/js\/api.min.js';s.async=true;s.dataset.user=u;s.dataset.campaign=ac;d.getElementsByTagName('head')[0].appendChild(s);})(document,130718,'tb6oxwvn4wbkttsdhovr');<\/script>\n<!-- \/ OptinMonster -->\n\n\n\n<p style=\"font-size:18.5px\">Next, we must understand the <strong>typical Benefits and Costs of <a href=\"https:\/\/www.investopedia.com\/terms\/m\/mergersandacquisitions.asp\" target=\"_blank\" rel=\"noreferrer noopener\"><mark style=\"background-color:rgba(0, 0, 0, 0)\" class=\"has-inline-color has-vivid-cyan-blue-color\">a Public Company M&amp;A Deal<\/mark><\/a><\/strong>.<\/p>\n\n\n\n<p style=\"font-size:18.5px\">In a typical M&amp;A deal, the <strong>Acquirer<\/strong> <strong>gains Earnings &amp; Synergies<\/strong>, which are <strong>offset by Financing costs<\/strong> related to the <a href=\"https:\/\/finance-able.com\/the-difference-between-stocks-and-bonds\/\"><strong><mark style=\"background-color:rgba(0, 0, 0, 0)\" class=\"has-inline-color has-vivid-cyan-blue-color\">Debt<\/mark>, <mark style=\"background-color:rgba(0, 0, 0, 0)\" class=\"has-inline-color has-vivid-cyan-blue-color\">Equity<\/mark><\/strong><\/a> or Cash used to fund the deal.<\/p>\n\n\n\n<p style=\"font-size:18.5px\">Below we have laid out detailed descriptions of the core <strong>typical Benefits and Costs<\/strong> you must weigh in an <strong>M&amp;A Transaction<\/strong>.<\/p>\n\n\n\n<div style=\"height:40px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n<div class=\"wp-block-image\">\n<figure class=\"aligncenter size-large\"><img loading=\"lazy\" decoding=\"async\" width=\"1024\" height=\"391\" src=\"https:\/\/finance-able.com\/wp-content\/uploads\/2021\/07\/accretion-dilution-benefit-costsFA-1024x391.png\" alt=\"An image showing the categories and definitions of M&amp;A benefits and costs in accretion dilution analysis\" class=\"wp-image-53465\" srcset=\"https:\/\/finance-able.com\/wp-content\/uploads\/2021\/07\/accretion-dilution-benefit-costsFA-1024x391.png 1024w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/07\/accretion-dilution-benefit-costsFA-300x115.png 300w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/07\/accretion-dilution-benefit-costsFA-768x294.png 768w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/07\/accretion-dilution-benefit-costsFA-624x239.png 624w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/07\/accretion-dilution-benefit-costsFA.png 1274w\" sizes=\"auto, (max-width: 1024px) 100vw, 1024px\" \/><\/figure>\n<\/div>\n\n\n<div style=\"height:50px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<h3 class=\"wp-block-heading\" style=\"font-size:26px\"><strong>Accretion \/ Dilution Calculation: Typical M&amp;A Benefits<\/strong><\/h3>\n\n\n\n<ul class=\"wp-block-list\">\n<li><strong>Acquired Earnings<\/strong>: Target&#8217;s Net Income.<\/li>\n\n\n\n<li><strong>Synergies<\/strong>: Cost Savings or additional Revenue from combining the Acquirer&#8217;s and Target&#8217;s Businesses.<\/li>\n<\/ul>\n\n\n\n<div style=\"height:50px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<h3 class=\"wp-block-heading\" style=\"font-size:26px\"><strong>Accretion \/ Dilution Calculation: Typical M&amp;A Costs<\/strong><\/h3>\n\n\n\n<ul class=\"wp-block-list\">\n<li><strong>Interest Expense<\/strong>: if the Acquirer uses Debt to fund the Acquisition, the Interest Expense associated with the Acquisition Debt is a funding cost of the M&amp;A deal.<\/li>\n\n\n\n<li><strong>Foregone Interest Income<\/strong>: if the Acquirer uses Cash to fund the Acquisition (which removes cash from the Acquirer&#8217;s bank account), it loses the Interest Income that Cash would have earned if the Acquisition did not occur.<\/li>\n\n\n\n<li><strong>Equity Dilution<\/strong>: if the Acquirer uses shares to purchase the Target, the additional shares issued to the Target shareholders will lower the earnings available to each shareholder.<\/li>\n<\/ul>\n\n\n\n<div style=\"height:40px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<h3 class=\"wp-block-heading\" style=\"font-size:26px\"><strong>All Benefits and Costs Must Be After-Tax<\/strong><\/h3>\n\n\n\n<p style=\"font-size:18.5px\">Note that Accretion \/ Dilution reflects the <strong>impact of an M&amp;A deal on the Acquirer&#8217;s Earnings Per Share<\/strong>, taking into account the <a href=\"https:\/\/pro.bloombergtax.com\/brief\/tax-considerations-in-ma-and-restructuring\/\" target=\"_blank\" rel=\"noreferrer noopener\"><strong><mark style=\"background-color:rgba(0, 0, 0, 0)\" class=\"has-inline-color has-vivid-cyan-blue-color\"><u>after-tax<\/u> Benefits and Costs<\/mark><\/strong><\/a> of the M&amp;A deal.<\/p>\n\n\n\n<p style=\"font-size:18.5px\"><strong><em>So, we must calculate each of the above items on an after-tax basis.<\/em><\/strong><\/p>\n\n\n\n<div style=\"height:60px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<h3 class=\"wp-block-heading\" style=\"font-size:26px\"><strong>Weighing M&amp;A Benefits &amp; Costs<\/strong><\/h3>\n\n\n\n<p style=\"font-size:18.5px\">Ultimately, we <strong>weigh all the items above against each other<\/strong> to determine whether a <strong>deal is Accretive or Dilutive<\/strong>.<\/p>\n\n\n\n<div style=\"height:40px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<p><\/p>\n\n\n<div class=\"wp-block-image\">\n<figure class=\"aligncenter size-large\"><img loading=\"lazy\" decoding=\"async\" width=\"1024\" height=\"538\" src=\"https:\/\/finance-able.com\/wp-content\/uploads\/2021\/07\/weighing-MA-benefits-and-costsFA-1024x538.png\" alt=\"An image showing the benefits and costs to weigh in an M&amp;A Deal\" class=\"wp-image-53469\" srcset=\"https:\/\/finance-able.com\/wp-content\/uploads\/2021\/07\/weighing-MA-benefits-and-costsFA-1024x538.png 1024w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/07\/weighing-MA-benefits-and-costsFA-300x158.png 300w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/07\/weighing-MA-benefits-and-costsFA-768x404.png 768w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/07\/weighing-MA-benefits-and-costsFA-624x328.png 624w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/07\/weighing-MA-benefits-and-costsFA.png 1189w\" sizes=\"auto, (max-width: 1024px) 100vw, 1024px\" \/><\/figure>\n<\/div>\n\n\n<div style=\"height:40px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<p style=\"font-size:18.5px\">Now that we understand the high-level Benefits and Costs, let&#8217;s dig into the Accretion \/ Dilution calculation. <strong><br><\/strong><\/p>\n\n\n\n<div style=\"height:70px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<h2 class=\"wp-block-heading\" style=\"font-size:35px\"><strong>Calculate Accretion \/ Dilution in 3 Easy Steps<\/strong><\/h2>\n\n\n\n<p style=\"font-size:18.5px\"><strong><em>Still nervous about working through an Accretion \/ Dilution analysis? <\/em><\/strong> We have good news! &nbsp;<\/p>\n\n\n\n<p style=\"font-size:18.5px\">We can <strong>calculate Accretion \/ Dilution<\/strong> for any deal in just <strong>three easy steps<\/strong>:<\/p>\n\n\n<div class=\"wp-block-image\">\n<figure class=\"aligncenter size-full is-resized\"><img loading=\"lazy\" decoding=\"async\" width=\"1920\" height=\"1080\" src=\"https:\/\/finance-able.com\/wp-content\/uploads\/2022\/08\/Accretion-dilution-3-steps-simple.gif\" alt=\"The simple Accretion Dilution calculation in three steps\" class=\"wp-image-53576\" style=\"width:746px;height:419px\"\/><\/figure>\n<\/div>\n\n\n<div class=\"schema-how-to wp-block-yoast-how-to-block\"><p class=\"schema-how-to-description\"><strong>Calculate Pro Forma Net Income in 3 Steps<\/strong><\/p> <ol class=\"schema-how-to-steps\"><li class=\"schema-how-to-step\" id=\"how-to-step-1661950284110\"><strong class=\"schema-how-to-step-name\"><strong>Calculate PF Net Income<\/strong><\/strong> <p class=\"schema-how-to-step-text\">Begin with the Acquirer&#8217;s Net Income, add the Acquired Target Earnings and Synergies, and subtract Interest Expense and Foregone Interest Income. As mentioned above, be sure to calculate all items on an After-Tax Basis.<\/p> <\/li><li class=\"schema-how-to-step\" id=\"how-to-step-1661950333737\"><strong class=\"schema-how-to-step-name\"><strong>Calculate PF Shares<\/strong><\/strong> <p class=\"schema-how-to-step-text\">Start with the Acquirer&#8217;s Share Count and add any New Shares Issued to the Target.<\/p> <\/li><li class=\"schema-how-to-step\" id=\"how-to-step-1661950367800\"><strong class=\"schema-how-to-step-name\"><strong>Calculate PF EPS<\/strong><\/strong> <p class=\"schema-how-to-step-text\">Divide Pro Forma Net Income by the Pro Forma Shares.<\/p> <\/li><\/ol><\/div>\n\n\n\n<div style=\"height:10px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<p style=\"font-size:18.5px\"><strong><u>Note<\/u><\/strong>: <mark style=\"background-color:rgba(0, 0, 0, 0)\" class=\"has-inline-color has-vivid-cyan-blue-color\"><a href=\"https:\/\/online.hbs.edu\/blog\/post\/pro-forma-financial-statements#:~:text=A%20pro%20forma%20financial%20statement%20leverages%20hypothetical%20data%20or%20assumptions,statements%20forecasted%20for%20future%20periods.\" target=\"_blank\" rel=\"noreferrer noopener\"><strong>Pro Forma (PF)<\/strong><\/a><\/mark> roughly translates in Latin to <em>&#8216;in the form of&#8217; <\/em>or <em>&#8216;for the sake of form.&#8217;<\/em> In an M&amp;A transaction, we look<strong> at the <em>&#8216;form&#8217;<\/em> of two Companies as if they were combined<\/strong>.<\/p>\n\n\n\n<div style=\"height:20px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<p>If <strong>Pro Forma EPS is greater than the Acquirer&#8217;s Pre-Deal EPS<\/strong>, the deal is <strong>Accretive<\/strong>!<\/p>\n\n\n\n<p style=\"font-size:18.5px\">If <strong>Pro Forma EPS is less than the Acquirer&#8217;s <strong>Pre-Deal <\/strong>EPS<\/strong>, the deal is <strong>Dilutive<\/strong>!<\/p>\n\n\n\n<div style=\"height:10px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<p style=\"font-size:18.5px\">As a quick recap, here is a<strong> visual summary of the calculation<\/strong>:<\/p>\n\n\n\n<div style=\"height:40px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n<div class=\"wp-block-image\">\n<figure class=\"aligncenter size-full\"><img loading=\"lazy\" decoding=\"async\" width=\"663\" height=\"447\" src=\"https:\/\/finance-able.com\/wp-content\/uploads\/2021\/07\/Accretion-dilution-3-steps-detailed.png\" alt=\"The detailed Accretion Dilution calculation in three steps\" class=\"wp-image-53470\" srcset=\"https:\/\/finance-able.com\/wp-content\/uploads\/2021\/07\/Accretion-dilution-3-steps-detailed.png 663w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/07\/Accretion-dilution-3-steps-detailed-300x202.png 300w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/07\/Accretion-dilution-3-steps-detailed-624x421.png 624w\" sizes=\"auto, (max-width: 663px) 100vw, 663px\" \/><\/figure>\n<\/div>\n\n\n<p style=\"font-size:18.5px\">In the <strong>coming sections<\/strong>, we will walk through an <strong>example of a complete Accretion \/ Dilution Calculation<\/strong>.<\/p>\n\n\n\n<p style=\"font-size:18.5px\">Before we jump ahead, though, let&#8217;s explore a <strong>special case called Cash Accretion Dilution<\/strong>.<\/p>\n\n\n\n<div style=\"height:70px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<h2 class=\"wp-block-heading\" style=\"font-size:35px\"><strong>What is Cash Accretion \/ Dilution?<\/strong><\/h2>\n\n\n\n<p style=\"font-size:18.5px\">Analysts often calculate the EPS impact of an M&amp;A deal, <strong><em>excluding One-Time Charges and Non-Cash Expenses created by an Acquisition<\/em><\/strong>.<\/p>\n\n\n\n<div style=\"height:40px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n<div class=\"wp-block-image\">\n<figure class=\"aligncenter size-full\"><img loading=\"lazy\" decoding=\"async\" width=\"853\" height=\"111\" src=\"https:\/\/finance-able.com\/wp-content\/uploads\/2021\/07\/Cash-accretion-dilution.png\" alt=\"An overview of the core elements of cash accretion\/dilution\" class=\"wp-image-53480\" srcset=\"https:\/\/finance-able.com\/wp-content\/uploads\/2021\/07\/Cash-accretion-dilution.png 853w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/07\/Cash-accretion-dilution-300x39.png 300w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/07\/Cash-accretion-dilution-768x100.png 768w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/07\/Cash-accretion-dilution-624x81.png 624w\" sizes=\"auto, (max-width: 853px) 100vw, 853px\" \/><\/figure>\n<\/div>\n\n\n<div style=\"height:60px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<h3 class=\"wp-block-heading\" style=\"font-size:26px\"><strong>Why Exclude One-Time Charges?<\/strong><\/h3>\n\n\n\n<p style=\"font-size:18.5px\">We <strong>exclude One-Time Costs<\/strong> because they <strong>do not reflect the underlying earnings<\/strong> of the combined Businesses in the future.<\/p>\n\n\n\n<p style=\"font-size:18.5px\"><strong>Examples<\/strong> of <strong>One-Time Charges<\/strong> include <strong><mark style=\"background-color:rgba(0, 0, 0, 0)\" class=\"has-inline-color has-vivid-cyan-blue-color\"><a href=\"https:\/\/masource.org\/a-summary-of-ma-fees-for-sell-side-transactions\/\" target=\"_blank\" rel=\"noreferrer noopener\">M&amp;A fees<\/a><\/mark><\/strong> paid to Investment Bankers, and Lawyers and <strong>breakage costs<\/strong> (which arise from the early retirement of the Target&#8217;s Debt).<\/p>\n\n\n\n<div style=\"height:60px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<h3 class=\"wp-block-heading\" style=\"font-size:26px\"><strong>Why Exclude Non-Cash Expenses?<\/strong><\/h3>\n\n\n\n<p style=\"font-size:18.5px\">We <strong>exclude Non-Cash Charges <\/strong>because they are difficult to estimate until accountants do their work after a deal closes. <\/p>\n\n\n\n<p style=\"font-size:18.5px\"><strong>Examples<\/strong> of <strong>Non-Cash Expenses created in an M&amp;A transaction<\/strong> include the <strong>new Depreciation of Tangible Assets<\/strong> and the <strong>Amortization of Intangible Assets<\/strong>.<\/p>\n\n\n\n<p style=\"font-size:18.5px\">This <strong>process of creating new non-cash charges by marking Assets and Liabilities to fair value<\/strong> is called <a href=\"https:\/\/finance-able.com\/purchase-price-allocation\/\"><strong>Purchase Price Allocation<\/strong><\/a>.<\/p>\n\n\n\n<p style=\"font-size:18.5px\">Now that we understand Cash Accretion Dilution, let&#8217;s <strong>look at a Common IB Interview Question<\/strong>.<\/p>\n\n\n\n<div style=\"height:70px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<h2 class=\"wp-block-heading\" style=\"font-size:35px\"><strong>Accretion \/ Dilution Interview Question \/ Example<\/strong> <\/h2>\n\n\n\n<p style=\"font-size:18.5px\">Let\u2019s dig into the most <strong>common Accretion \/ Dilution <\/strong><a href=\"https:\/\/finance-able.com\/investment-banking-interview-questions\/\"><strong><mark style=\"background-color:rgba(0, 0, 0, 0)\" class=\"has-inline-color has-vivid-cyan-blue-color\">Investment Banking Interview Question<\/mark><\/strong><\/a>:<\/p>\n\n\n\n<p style=\"font-size:18.5px\"><em>A company with a <strong>High P\/E Ratio<\/strong> acquires a company with a <strong>Low P\/E Ratio<\/strong> in an <strong>All-Stock Deal<\/strong>. <strong>Is this deal Accretive or Dilutive?<\/strong><\/em><\/p>\n\n\n\n<p style=\"font-size:18.5px\"><strong>Answer<\/strong>: <strong>The Deal is<\/strong> <strong>Accretive<\/strong>. But why?<\/p>\n\n\n\n<p style=\"font-size:18.5px\">Let&#8217;s walk through a simple example to explain.<\/p>\n\n\n\n<div style=\"height:60px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<h3 class=\"wp-block-heading\" style=\"font-size:26px\"><strong>Accretion \/ Dilution \u2013 Simple Example<\/strong><\/h3>\n\n\n\n<p style=\"font-size:18.5px\">We will imagine that <strong>Gooey Cookie Company (Acquirer)<\/strong> wants to buy <strong>Chocolate Cookie Company (Target)<\/strong> in an All-Stock Deal.<\/p>\n\n\n\n<p style=\"font-size:18.5px\"><strong>Gooey Cookie Company&#8217;s P\/E (20x)<\/strong> is higher than <strong>Chocolate Cookie Company&#8217;s P\/E (10x)<\/strong>.<\/p>\n\n\n\n<p style=\"font-size:18.5px\">Said differently, <strong>Gooey Cookie&#8217;s Share Value per dollar of Earnings is higher than that of Chocolate Cookie Company<\/strong>.<\/p>\n\n\n\n<div style=\"height:40px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n<div class=\"wp-block-image\">\n<figure class=\"aligncenter size-full\"><img loading=\"lazy\" decoding=\"async\" width=\"861\" height=\"367\" src=\"https:\/\/finance-able.com\/wp-content\/uploads\/2021\/07\/all-stock-accretion-dilution-simple-example-summary-overview.png\" alt=\"An image showing the transaction details for a simple accretion dilution analysis\" class=\"wp-image-53479\" srcset=\"https:\/\/finance-able.com\/wp-content\/uploads\/2021\/07\/all-stock-accretion-dilution-simple-example-summary-overview.png 861w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/07\/all-stock-accretion-dilution-simple-example-summary-overview-300x128.png 300w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/07\/all-stock-accretion-dilution-simple-example-summary-overview-768x327.png 768w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/07\/all-stock-accretion-dilution-simple-example-summary-overview-624x266.png 624w\" sizes=\"auto, (max-width: 861px) 100vw, 861px\" \/><\/figure>\n<\/div>\n\n\n<div style=\"height:40px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<p style=\"font-size:18.5px\">Let&#8217;s <strong>apply our Three Easy Steps for Calculating Accretion \/ Dilution<\/strong> to see why this deal is always Accretive. <strong><br><\/strong><\/p>\n\n\n\n<div style=\"height:70px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<h3 class=\"wp-block-heading\" style=\"font-size:26px\"><strong>Accretion \/ Dilution \u2013 Step #1: Pro Forma Net Income<\/strong><\/h3>\n\n\n\n<p style=\"font-size:18.5px\">First, we <strong>calculate <\/strong><a href=\"https:\/\/www.lawinsider.com\/dictionary\/pro-forma-net-income#:~:text=Sample%201-,Pro%20Forma%20Net%20Income%20means%20as%20to%20any%20business%20unit,%2C%20interest%2C%20and%20other%20expenses.\" target=\"_blank\" rel=\"noreferrer noopener\"><strong><mark style=\"background-color:rgba(0, 0, 0, 0)\" class=\"has-inline-color has-vivid-cyan-blue-color\">Pro Forma Net Income<\/mark><\/strong><\/a> by adding <strong>Acquirer Net Income<\/strong>, <strong>Acquired Earnings,<\/strong> and <strong>Synergies<\/strong> (which we assume to be zero since the value of Synergies is not specified in the question).<\/p>\n\n\n\n<div style=\"height:40px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n<div class=\"wp-block-image\">\n<figure class=\"aligncenter size-full\"><img loading=\"lazy\" decoding=\"async\" width=\"799\" height=\"217\" src=\"https:\/\/finance-able.com\/wp-content\/uploads\/2021\/07\/all-stock-accretion-dilution-simple-example-PF-Net-Income.png\" alt=\"An image showing the pro forma net income calculation for a simple accretion dilution analysis\" class=\"wp-image-53477\" srcset=\"https:\/\/finance-able.com\/wp-content\/uploads\/2021\/07\/all-stock-accretion-dilution-simple-example-PF-Net-Income.png 799w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/07\/all-stock-accretion-dilution-simple-example-PF-Net-Income-300x81.png 300w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/07\/all-stock-accretion-dilution-simple-example-PF-Net-Income-768x209.png 768w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/07\/all-stock-accretion-dilution-simple-example-PF-Net-Income-624x169.png 624w\" sizes=\"auto, (max-width: 799px) 100vw, 799px\" \/><\/figure>\n<\/div>\n\n\n<div style=\"height:40px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<p style=\"font-size:18.5px\"><strong><em>Pro Forma Net Income is $300<\/em><\/strong> in this example.<\/p>\n\n\n\n<div style=\"height:70px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<h3 class=\"wp-block-heading\" style=\"font-size:26px\"><strong>Accretion \/ Dilution \u2013 Step #2: Pro Forma Shares<\/strong><\/h3>\n\n\n\n<p style=\"font-size:18.5px\">Second, we will <strong>calculate Pro Forma Shares<\/strong> by adding <strong>Acquirer Shares<\/strong> and the <strong>New Shares Issued to the Target<\/strong>.<\/p>\n\n\n\n<p style=\"font-size:18.5px\">To <strong>calculate the number of New Shares Issued to the Target<\/strong>, <em>first calculate the dollar amount Target shareholders will receive<\/em>.<\/p>\n\n\n\n<p style=\"font-size:18.5px\">In this example, the <strong>Target<\/strong> has <strong>200 shares at $10 per share, for a total Equity Value of $2,000<\/strong>.&nbsp;<\/p>\n\n\n\n<p style=\"font-size:18.5px\">The <strong>Acquirer must purchase $2,000<\/strong> of the Target&#8217;s Equity Value with <strong>$20 shares<\/strong>.<\/p>\n\n\n\n<p style=\"font-size:18.5px\">As a result, the <strong>Acquirer must issue 100 of its own Shares<\/strong> &nbsp;($2,000 Target Equity Value \/ $20 Acquirer Share Price) to purchase the Target Company&#8217;s total Equity Value.<\/p>\n\n\n\n<div style=\"height:40px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n<div class=\"wp-block-image\">\n<figure class=\"aligncenter size-full\"><img loading=\"lazy\" decoding=\"async\" width=\"887\" height=\"390\" src=\"https:\/\/finance-able.com\/wp-content\/uploads\/2021\/07\/all-stock-accretion-dilution-simple-example-PF-shares.png\" alt=\"An image showing the pro forma shares calculation for a simple accretion dilution analysis\" class=\"wp-image-53478\" srcset=\"https:\/\/finance-able.com\/wp-content\/uploads\/2021\/07\/all-stock-accretion-dilution-simple-example-PF-shares.png 887w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/07\/all-stock-accretion-dilution-simple-example-PF-shares-300x132.png 300w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/07\/all-stock-accretion-dilution-simple-example-PF-shares-768x338.png 768w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/07\/all-stock-accretion-dilution-simple-example-PF-shares-624x274.png 624w\" sizes=\"auto, (max-width: 887px) 100vw, 887px\" \/><\/figure>\n<\/div>\n\n\n<div style=\"height:40px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<p style=\"font-size:18.5px\">As a result, the <strong>Pro Forma Share Count<\/strong> will be the <strong>Acquirer&#8217;s 100 shares plus 100 new shares<\/strong> to be issued to the Target Company&#8217;s shareholders.<\/p>\n\n\n\n<p style=\"font-size:18.5px\">The <strong>combined Companies will have 200 shares following the close of the deal<\/strong>.<\/p>\n\n\n\n<p style=\"font-size:18.5px\">Take note of what happened here!<\/p>\n\n\n\n<p style=\"font-size:18.5px\">The <strong>Acquirer issues 100 of its own shares to retire 200 of the Target&#8217;s shares<\/strong>!<\/p>\n\n\n\n<p style=\"font-size:18.5px\">So, the <strong><u>Combined Share Count shrinks<\/u><\/strong> as a result of the deal.<\/p>\n\n\n\n<div style=\"height:40px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<h3 class=\"wp-block-heading\" style=\"font-size:26px\"><strong>Accretion \/ Dilution \u2013 Step #3: Calculate Pro Forma EPS<\/strong><\/h3>\n\n\n\n<p style=\"font-size:18.5px\">Now, we can calculate <strong>the Pro Forma Earnings Per Share<\/strong> by dividing the Pro Forma Net Income (from Step 1) by the Pro Forma Shares (from Step 2).<\/p>\n\n\n\n<div style=\"height:40px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n<div class=\"wp-block-image\">\n<figure class=\"aligncenter size-full\"><img loading=\"lazy\" decoding=\"async\" width=\"963\" height=\"699\" src=\"https:\/\/finance-able.com\/wp-content\/uploads\/2021\/07\/all-stock-accretion-dilution-simple-example-PF-EPSFA.png\" alt=\"An image showing the pro forma earnings per share calculation for a simple accretion dilution analysis\" class=\"wp-image-53466\" srcset=\"https:\/\/finance-able.com\/wp-content\/uploads\/2021\/07\/all-stock-accretion-dilution-simple-example-PF-EPSFA.png 963w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/07\/all-stock-accretion-dilution-simple-example-PF-EPSFA-300x218.png 300w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/07\/all-stock-accretion-dilution-simple-example-PF-EPSFA-768x557.png 768w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/07\/all-stock-accretion-dilution-simple-example-PF-EPSFA-624x453.png 624w\" sizes=\"auto, (max-width: 963px) 100vw, 963px\" \/><\/figure>\n<\/div>\n\n\n<div style=\"height:40px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<p style=\"font-size:18.5px\">In other words, <strong>Pro Forma Net Income is the same <\/strong>as it was before the deal\u2026but the <strong>combined Share Count is lower<\/strong>.<\/p>\n\n\n\n<p style=\"font-size:18.5px\">So<strong>, Earnings Per Share will mechanically increase<\/strong> (vs. before the deal). <strong>Hence the deal will be Accretive!<\/strong><\/p>\n\n\n\n<div style=\"height:40px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n<div class=\"wp-block-image\">\n<figure class=\"aligncenter size-full\"><img loading=\"lazy\" decoding=\"async\" width=\"679\" height=\"261\" src=\"https:\/\/finance-able.com\/wp-content\/uploads\/2021\/07\/all-stock-accretion-dilution-simple-example-accretive.png\" alt=\"An image showing a simple accretion dilution analysis that results in an accretive outcome\" class=\"wp-image-53476\" srcset=\"https:\/\/finance-able.com\/wp-content\/uploads\/2021\/07\/all-stock-accretion-dilution-simple-example-accretive.png 679w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/07\/all-stock-accretion-dilution-simple-example-accretive-300x115.png 300w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/07\/all-stock-accretion-dilution-simple-example-accretive-624x240.png 624w\" sizes=\"auto, (max-width: 679px) 100vw, 679px\" \/><\/figure>\n<\/div>\n\n\n<div style=\"height:40px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<p style=\"font-size:18.5px\">Through this example, we have proven a <strong>rule of thumb for All Stock Deals<\/strong>:<\/p>\n\n\n\n<ol style=\"list-style-type:1\" class=\"wp-block-list\">\n<li><strong>If the Acquirer&#8217;s P\/E is higher than the Target&#8217;s P\/E, the deal is Accretive<\/strong>.<\/li>\n\n\n\n<li><strong>If the Acquirer&#8217;s P\/E is lower than the Target&#8217;s P\/E, the deal is Dilutive.<\/strong><\/li>\n<\/ol>\n\n\n\n<div style=\"height:40px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n<div class=\"wp-block-image\">\n<figure class=\"aligncenter size-full\"><img loading=\"lazy\" decoding=\"async\" width=\"818\" height=\"261\" src=\"https:\/\/finance-able.com\/wp-content\/uploads\/2021\/07\/all-stock-accretion-dilution-rule-of-thumb.png\" alt=\"An image showing the Accretion\/Dilution rule of thumb for all stock deal Interview Questions\" class=\"wp-image-53475\" srcset=\"https:\/\/finance-able.com\/wp-content\/uploads\/2021\/07\/all-stock-accretion-dilution-rule-of-thumb.png 818w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/07\/all-stock-accretion-dilution-rule-of-thumb-300x96.png 300w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/07\/all-stock-accretion-dilution-rule-of-thumb-768x245.png 768w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/07\/all-stock-accretion-dilution-rule-of-thumb-624x199.png 624w\" sizes=\"auto, (max-width: 818px) 100vw, 818px\" \/><\/figure>\n<\/div>\n\n\n<div style=\"height:40px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<p style=\"font-size:18.5px\"><strong>The rule above will help you solve many basic Accretion \/ Dilution Interview Questions<\/strong> in Investment Banking Interviews.<\/p>\n\n\n\n<p style=\"font-size:18.5px\">This question, along with \u2018<a href=\"https:\/\/finance-able.com\/walk-me-through-a-dcf\/\"><strong><mark style=\"background-color:rgba(0, 0, 0, 0)\" class=\"has-inline-color has-vivid-cyan-blue-color\">Walk Me Through a DCF<\/mark>\u2019<\/strong><\/a> and \u2018<a href=\"https:\/\/finance-able.com\/walk-me-through-an-lbo\/\"><strong><mark style=\"background-color:rgba(0, 0, 0, 0)\" class=\"has-inline-color has-vivid-cyan-blue-color\">Walk Me Through an LBO<\/mark><\/strong><\/a>\u2019 are some of the <strong>most common Investment Banking Interview Questions<\/strong>.<\/p>\n\n\n\n<div style=\"height:70px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<h3 class=\"wp-block-heading\" style=\"font-size:26px\"><strong>Advanced Accretion \/ Dilution Interview Questions<\/strong><\/h3>\n\n\n\n<p style=\"font-size:18.5px\"><em>For an A+ interview performance<\/em>, you can <strong>flip the P\/E ratio upside down<\/strong> (E\/P ratio) and <strong>think of it as an Earnings Yield<\/strong> (i.e., funding cost for a given Earnings).<\/p>\n\n\n\n<p style=\"font-size:18.5px\"><strong>If the Acquisition Financing Cost is lower than the Target&#8217;s Yield, the deal is Accretive. Otherwise, Dilutive.<\/strong><\/p>\n\n\n\n<p style=\"font-size:18.5px\">There are <strong>also more complicated variations of Accretion \/ Dilution questions <\/strong>that require understanding the<strong> <a href=\"https:\/\/www.investopedia.com\/ask\/answers\/051315\/how-does-equity-financing-affect-companys-financials-compared-effects-debt-financing.asp\" target=\"_blank\" rel=\"noreferrer noopener\"><mark style=\"background-color:rgba(0, 0, 0, 0)\" class=\"has-inline-color has-vivid-cyan-blue-color\">impacts of Cash and Debt<\/mark><\/a> <\/strong>(instead of just Equity).<\/p>\n\n\n\n<p style=\"font-size:18.5px\">You can learn how to tackle these <strong>advanced concepts in our <\/strong><a href=\"https:\/\/courses.finance-able.com\/courses\/m-a-fundamentals\"><strong><mark style=\"background-color:rgba(0, 0, 0, 0)\" class=\"has-inline-color has-vivid-cyan-blue-color\">M&amp;A Fundamentals Course<\/mark><\/strong><\/a>.<\/p>\n\n\n\n<p style=\"font-size:18.5px\">Now, let&#8217;s <strong>discuss how Accretion \/ Dilution works in a full Merger Model<\/strong>.<\/p>\n\n\n\n<div style=\"height:70px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<h2 class=\"wp-block-heading\" style=\"font-size:35px\"><strong>Accretion \/ Dilution in Merger Models<\/strong><\/h2>\n\n\n\n<p style=\"font-size:18.5px\">Investment Bankers build <strong>Merger Models<\/strong> to analyze the impact of a <strong>proposed Public Company M&amp;A transaction<\/strong>.<\/p>\n\n\n\n<p style=\"font-size:18.5px\">A <strong>Merger Model <\/strong>(also called an Accretion Dilution Model or M&amp;A Model) <strong>combines the two Companies&#8217; financials<\/strong> and <strong>builds Pro Forma financials<\/strong> (typically a complete Income Statement, Cash Flow Statement, and Balance Sheet) <strong>to compare with<\/strong> <strong>the Acquirer&#8217;s original financials<\/strong>.<\/p>\n\n\n\n<div style=\"height:40px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n<div class=\"wp-block-image\">\n<figure class=\"aligncenter size-full\"><img loading=\"lazy\" decoding=\"async\" width=\"414\" height=\"501\" src=\"https:\/\/finance-able.com\/wp-content\/uploads\/2021\/07\/Merger-model-snapshot.png\" alt=\"an image showing a snapshot of a full merger model accretion dilution analysis\" class=\"wp-image-53481\" srcset=\"https:\/\/finance-able.com\/wp-content\/uploads\/2021\/07\/Merger-model-snapshot.png 414w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/07\/Merger-model-snapshot-248x300.png 248w\" sizes=\"auto, (max-width: 414px) 100vw, 414px\" \/><\/figure>\n<\/div>\n\n\n<div style=\"height:40px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<p style=\"font-size:18.5px\"><strong>A Merger Model shows Accretion \/ Dilution as an output<\/strong>, among other metrics used to evaluate a deal (e.g., Leverage Multiples and Valuation Multiples).<\/p>\n\n\n\n<p style=\"font-size:18.5px\"><strong>Merger Models<\/strong> typically \u2018<strong>sensitize\u2019 Accretion \/ Dilution<\/strong> for various funding and deal structure assumptions.<\/p>\n\n\n\n<p style=\"font-size:18.5px\">Now that we understand the ins and outs of Accretion \/ Dilution, let\u2019s <strong>see how it impacts real-life M&amp;A Deals<\/strong>.<\/p>\n\n\n\n<div style=\"height:70px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<h2 class=\"wp-block-heading\" style=\"font-size:35px\"><strong>Real Life Example: Morgan Stanley Acquires E*TRADE<\/strong><\/h2>\n\n\n\n<div style=\"height:40px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n<div class=\"wp-block-image\">\n<figure class=\"aligncenter size-full\"><img loading=\"lazy\" decoding=\"async\" width=\"633\" height=\"193\" src=\"https:\/\/finance-able.com\/wp-content\/uploads\/2021\/07\/MS-Etrade-Acquisition-Presentation-cover.png\" alt=\"The cover page from Morgan Stanley\u2019s acquisition of Etrade\" class=\"wp-image-53482\" srcset=\"https:\/\/finance-able.com\/wp-content\/uploads\/2021\/07\/MS-Etrade-Acquisition-Presentation-cover.png 633w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/07\/MS-Etrade-Acquisition-Presentation-cover-300x91.png 300w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/07\/MS-Etrade-Acquisition-Presentation-cover-624x190.png 624w\" sizes=\"auto, (max-width: 633px) 100vw, 633px\" \/><\/figure>\n<\/div>\n\n\n<div style=\"height:40px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<p style=\"font-size:18.5px\">When <strong>Morgan Stanley acquired E*TRADE in an All-Stock Deal<\/strong>, the Acquirer communicated to shareholders that <strong>the deal would be EPS accretive<\/strong>.<\/p>\n\n\n\n<div style=\"height:40px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n<div class=\"wp-block-image\">\n<figure class=\"aligncenter size-full\"><img loading=\"lazy\" decoding=\"async\" width=\"934\" height=\"729\" src=\"https:\/\/finance-able.com\/wp-content\/uploads\/2021\/07\/MS-Etrade-Acquisition-Presentation-accretion-detailsFA.png\" alt=\"Summary page from Morgan Stanley\u2019s acquisition of Etrade showing the deal will be accretive\" class=\"wp-image-53467\" srcset=\"https:\/\/finance-able.com\/wp-content\/uploads\/2021\/07\/MS-Etrade-Acquisition-Presentation-accretion-detailsFA.png 934w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/07\/MS-Etrade-Acquisition-Presentation-accretion-detailsFA-300x234.png 300w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/07\/MS-Etrade-Acquisition-Presentation-accretion-detailsFA-768x599.png 768w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/07\/MS-Etrade-Acquisition-Presentation-accretion-detailsFA-624x487.png 624w\" sizes=\"auto, (max-width: 934px) 100vw, 934px\" \/><\/figure>\n<\/div>\n\n\n<div style=\"height:40px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<p style=\"font-size:18.5px\">In the press release, Morgan Stanley stated:<\/p>\n\n\n\n<div style=\"height:20px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n<div class=\"wp-block-image\">\n<figure class=\"aligncenter size-full\"><img loading=\"lazy\" decoding=\"async\" width=\"823\" height=\"246\" src=\"https:\/\/finance-able.com\/wp-content\/uploads\/2021\/07\/MS-Etrade-Acquisition-press-release-accretive.png\" alt=\"Press Release Excerpt from Morgan Stanley\u2019s acquisition of Etrade\" class=\"wp-image-53483\" srcset=\"https:\/\/finance-able.com\/wp-content\/uploads\/2021\/07\/MS-Etrade-Acquisition-press-release-accretive.png 823w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/07\/MS-Etrade-Acquisition-press-release-accretive-300x90.png 300w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/07\/MS-Etrade-Acquisition-press-release-accretive-768x230.png 768w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/07\/MS-Etrade-Acquisition-press-release-accretive-624x187.png 624w\" sizes=\"auto, (max-width: 823px) 100vw, 823px\" \/><\/figure>\n<\/div>\n\n\n<div style=\"height:40px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<p style=\"font-size:18.5px\">Combining the companies allowed Morgan Stanley to achieve <strong>Cost Synergies of $400 million a year<\/strong> from \u2018<em>consolidating duplicative platforms and systems, infrastructure and data center savings, shared services consolidation, real estate optimization, and operational efficiencies from the increased scale<\/em>.\u2019<\/p>\n\n\n\n<p style=\"font-size:18.5px\">As we said before, <strong>Public Company CEOs typically emphasize Accretion Dilution<\/strong> in M&amp;A transactions to <strong>convey to their Shareholders that they are creating value over time<\/strong>.<\/p>\n\n\n\n<p style=\"font-size:18.5px\">Now that we&#8217;ve seen a real-life example of Accretion Dilution, let&#8217;s wrap up!<\/p>\n\n\n\n<div style=\"height:70px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<h2 class=\"wp-block-heading\" style=\"font-size:35px\"><strong>Accretion \/ Dilution Wrap-Up<\/strong><\/h2>\n\n\n\n<div style=\"height:40px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n<div class=\"wp-block-image\">\n<figure class=\"aligncenter size-full\"><img loading=\"lazy\" decoding=\"async\" width=\"754\" height=\"454\" src=\"https:\/\/finance-able.com\/wp-content\/uploads\/2021\/07\/stick-figure-understanding-accretion-dilution.png\" alt=\"A stick figure at a desk understanding the concept of Accretion \/ Dilution\" class=\"wp-image-53485\" srcset=\"https:\/\/finance-able.com\/wp-content\/uploads\/2021\/07\/stick-figure-understanding-accretion-dilution.png 754w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/07\/stick-figure-understanding-accretion-dilution-300x181.png 300w, https:\/\/finance-able.com\/wp-content\/uploads\/2021\/07\/stick-figure-understanding-accretion-dilution-624x376.png 624w\" sizes=\"auto, (max-width: 754px) 100vw, 754px\" \/><\/figure>\n<\/div>\n\n\n<div style=\"height:40px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<p style=\"font-size:18.5px\">Accretion \/ Dilution is a <strong>critical concept to understand<\/strong> for anyone recruiting for an <strong>Investment Banking, Private Equity, or Investment Management<\/strong> job.<\/p>\n\n\n\n<p style=\"font-size:18.5px\">In summary, <strong>Accretion \/ Dilution expresses the impact of an M&amp;A deal <\/strong>on an Acquirer&#8217;s Earnings Per Share.<\/p>\n\n\n\n<p style=\"font-size:18.5px\">All else equal, <strong>Accretive deals (i.e., where EPS goes up) create value for Shareholders<\/strong>, whereas <strong>Dilutive deals (i.e., where EPS goes down) may destroy Shareholder Value<\/strong>.<\/p>\n\n\n\n<p style=\"font-size:18.5px\">We hope this article helped answer your questions.<\/p>\n\n\n\n<p style=\"font-size:18.5px\"><strong>Please email <\/strong><a href=\"mailto:admin@finance-able.com\"><strong><mark style=\"background-color:rgba(0, 0, 0, 0)\" class=\"has-inline-color has-vivid-cyan-blue-color\">admin@finance-able.com<\/mark><\/strong><\/a><strong> with any feedback or requests for any topics you would like to see in future articles.<\/strong><\/p>\n\n\n\n<div style=\"height:70px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<h2 class=\"wp-block-heading\" style=\"font-size:35px\"><strong>Interview Question Video Review: Accretion \/ Dilution<\/strong><\/h2>\n\n\n\n<p class=\"has-medium-font-size\"><strong><em>Want a video overview of Accretion \/ Dilution?<\/em><\/strong><\/p>\n\n\n\n<p style=\"font-size:18.5px\">Check out this <strong>YouTube <a href=\"https:\/\/youtu.be\/riiW3GYrWRI\"><mark style=\"background-color:rgba(0, 0, 0, 0)\" class=\"has-inline-color has-vivid-cyan-blue-color\">Video Walkthrough<\/mark><\/a> of Accretion\/Dilution <\/strong>from our Founder, Mike Kimpel, with a full walkthrough.<\/p>\n\n\n\n<p style=\"font-size:18.5px\">Also, check out our <a href=\"https:\/\/www.youtube.com\/channel\/UCu7i61GXqR08xc1WAgh9GkA\"><strong><mark style=\"background-color:rgba(0, 0, 0, 0)\" class=\"has-inline-color has-vivid-cyan-blue-color\">YouTube Channel<\/mark><\/strong><\/a> here for more Interview Question reviews and <a href=\"https:\/\/youtube.com\/playlist?list=PLJ2yVq7yYUT8u1j4SaSdk1tr-3dd62EuV\"><strong><mark style=\"background-color:rgba(0, 0, 0, 0)\" class=\"has-inline-color has-vivid-cyan-blue-color\">Finance Explainer Videos<\/mark><\/strong><\/a>.<\/p>\n\n\n\n<div style=\"height:70px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<h2 class=\"wp-block-heading\" style=\"font-size:35px\"><strong>About the Author<\/strong><\/h2>\n\n\n<div class=\"wp-block-image\">\n<figure class=\"alignleft size-full is-resized\"><img loading=\"lazy\" decoding=\"async\" width=\"500\" height=\"500\" src=\"https:\/\/finance-able.com\/wp-content\/uploads\/2020\/12\/MK-Photo.jpg\" alt=\"Picture of Mike Kimpel, Founder of Finance|able\" class=\"wp-image-26350\" style=\"width:266px;height:266px\" srcset=\"https:\/\/finance-able.com\/wp-content\/uploads\/2020\/12\/MK-Photo.jpg 500w, https:\/\/finance-able.com\/wp-content\/uploads\/2020\/12\/MK-Photo-300x300.jpg 300w, https:\/\/finance-able.com\/wp-content\/uploads\/2020\/12\/MK-Photo-100x100.jpg 100w, https:\/\/finance-able.com\/wp-content\/uploads\/2020\/12\/MK-Photo-150x150.jpg 150w, https:\/\/finance-able.com\/wp-content\/uploads\/2020\/12\/MK-Photo-50x50.jpg 50w\" sizes=\"auto, (max-width: 500px) 100vw, 500px\" \/><\/figure>\n<\/div>\n\n\n<p style=\"font-size:17px\"><a href=\"https:\/\/finance-able.com\/about\/\"><strong><mark style=\"background-color:rgba(0, 0, 0, 0)\" class=\"has-inline-color has-vivid-cyan-blue-color\">Mike Kimpel<\/mark><\/strong><\/a> is the <strong>Founder and CEO<\/strong> of <strong>Finance|able<\/strong>, a next-generation Finance Career Training platform. Mike has worked in Investment Banking, Private Equity, Hedge Fund, and Mutual Fund roles during his career.<\/p>\n\n\n\n<p style=\"font-size:17px\">He is an <strong>Adjunct Professor<\/strong> in <strong>Columbia Business School&#8217;s <a href=\"https:\/\/www8.gsb.columbia.edu\/valueinvesting\/coursesfaculty\/valueinvestingprogram\" target=\"_blank\" rel=\"noreferrer noopener\"><mark style=\"background-color:rgba(0, 0, 0, 0)\" class=\"has-inline-color has-vivid-cyan-blue-color\">Value Investing Program<\/mark><\/a><\/strong> and leads the Finance track at <a href=\"https:\/\/www.accessdistributed.org\/\" target=\"_blank\" rel=\"noreferrer noopener\"><mark style=\"background-color:rgba(0, 0, 0, 0)\" class=\"has-inline-color has-vivid-cyan-blue-color\"><strong>Access Distributed<\/strong><\/mark><\/a>, a non-profit that creates access to top-tier Finance jobs for students at non-target schools from underrepresented backgrounds.<\/p>\n\n\n\n<div style=\"height:70px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<h2 class=\"wp-block-heading\" style=\"font-size:35px\"><strong>Frequently Asked Questions<\/strong><\/h2>\n\n\n\n<div class=\"schema-faq wp-block-yoast-faq-block\"><div class=\"schema-faq-section\" id=\"faq-question-1661951037272\"><strong class=\"schema-faq-question\"><strong>What does Accretive mean?<\/strong><\/strong> <p class=\"schema-faq-answer\">In the context of M&amp;A Deals, Accretive typically describes a deal in which the combined earnings of the Acquirer and Target (post-deal) exceed the earnings of the standalone Acquirer before the deal.<\/p> <\/div> <div class=\"schema-faq-section\" id=\"faq-question-1661951058326\"><strong class=\"schema-faq-question\"><strong>How do you calculate Accretion \/ Dilution?<\/strong><\/strong> <p class=\"schema-faq-answer\">You can calculate Accretion \/ Dilution by (1) Calculating the Pro Forma Net Income of the combined Acquirer and Target, (2) Calculating the Pro Forma Share Count, and then (3) Calculating the Pro Forma Earnings Per Share.<\/p> <\/div> <div class=\"schema-faq-section\" id=\"faq-question-1661951071332\"><strong class=\"schema-faq-question\"><strong>Why is Accretion \/ Dilution important?<\/strong><\/strong> <p class=\"schema-faq-answer\">Accretion \/ Dilution helps CEOs, Boards, and Shareholders of Publicly Traded companies determine the direction of Earnings Per Share following a Merger or Acquisition close.<\/p> <\/div> <div class=\"schema-faq-section\" id=\"faq-question-1661951085285\"><strong class=\"schema-faq-question\"><strong>What is the opposite of Accretive?<\/strong><\/strong> <p class=\"schema-faq-answer\">The opposite of Accretive is Dilutive. In short, in the M&amp;A world, an Accretive deal means Earnings Per Share increase following the close of a deal. Conversely, a Dilutive deal means that Earnings Per Share will decrease following the close of a deal.<br\/><br\/>Note that Accretion \/ Dilution generally refers to the impact to Earnings Per Share but can also apply to other metrics such as EBIT, EBITDA, or Free Cash Flow.<\/p> <\/div> <div class=\"schema-faq-section\" id=\"faq-question-1661951100546\"><strong class=\"schema-faq-question\"><strong>How do you use the word Accretive?<\/strong><\/strong> <p class=\"schema-faq-answer\">You would typically use the word &#8216;Accretive&#8217; to describe the impact of an M&amp;A transaction on a Company&#8217;s Earnings Per Share.<br\/><br\/>If you were to say, &#8216;The deal will be Accretive to earnings,&#8217; you are saying that Earnings Per Share will increase following the close of a deal.<\/p> <\/div> <\/div>\n\n\n\n<div style=\"height:70px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<h2 class=\"wp-block-heading\" style=\"font-size:35px\">Related Links<\/h2>\n\n\n\n<ul class=\"wp-block-yoast-seo-related-links yoast-seo-related-links\">\n<li><a href=\"https:\/\/finance-able.com\/investment-banking-career-path\/\"><mark style=\"background-color:rgba(0, 0, 0, 0)\" class=\"has-inline-color has-vivid-cyan-blue-color\"><strong>Investment Banking Career Path<\/strong><\/mark><\/a><\/li>\n\n\n\n<li><a href=\"https:\/\/finance-able.com\/buyside-vs-sellside\/\"><mark style=\"background-color:rgba(0, 0, 0, 0)\" class=\"has-inline-color has-vivid-cyan-blue-color\"><strong>Buy Side vs. Sell Side<\/strong><\/mark><\/a><\/li>\n\n\n\n<li><a href=\"https:\/\/finance-able.com\/walk-me-through-a-dcf\/\"><mark style=\"background-color:rgba(0, 0, 0, 0)\" class=\"has-inline-color has-vivid-cyan-blue-color\"><strong>Walk Me Through A DCF<\/strong><\/mark><\/a><\/li>\n<\/ul>\n\n\n\n<div style=\"height:70px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n<div class=\"yoast-breadcrumbs\"><span><span><a 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    "rendered": "<p>Master Accretion \/ Dilution so you can ace your Investment Banking, Private Equity, and Investment Management interviews. We\u2019ll break everything down with a simple 3-Step Framework as well as tips on how to avoid common pitfalls. Let&#8217;s jump in! In this article, you will learn: TL; DR Want To Learn More About Finance? Ramp up&#8230;<\/p>\n",
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