Accretion and dilution
Whether a deal adds to earnings per share, and why that is not the same as whether it creates value.
When a public company announces an acquisition, the first question every analyst on the call asks is whether it is accretive to earnings per share. The arithmetic is simple: combine the two income statements, adjust for how the deal is financed, and divide by the new share count. What makes this worth a module is the gap between the arithmetic and the meaning. A deal can be accretive and destroy value, or dilutive and be the best decision the board ever made. Understanding both the calculation and its limits is what separates someone who can run the model from someone who can advise on it.
What this course covers
- 01Establish standalone earnings
- 02Decide the consideration mix
- 03Model the financing effect
- 04Layer in synergies and deal effects
- 05Divide, compare, and then say what it means
What you will be able to do
- Any acquisition by a listed acquirer where the market watches EPS
- Comparing financing options (cash, debt or stock) for the same acquisition
- Setting the maximum price at which a deal stays accretive
- Preparing management for the questions an earnings call will actually produce
Where it does not apply
- As a test of whether a deal creates value: that is what a DCF on the combined entity is for
- Private acquirers, where there is no EPS and no market to react to it
- Deals where the strategic rationale is a capability rather than earnings
- Early-stage targets with no earnings to combine
How this prepares you for the assessment
This is one of 17 courses, and none of them is required for the Verified Valuation Assessment. The credential is earned on two timed drills, graded by the same engine that checks this course, and the drill score decides what it says you are capable of, from Foundation through to Distinction.
- Distinction90%+Works independently across all three core methods.
- Merit75%+Builds the core models with limited supervision.
- Pass60%+Understands the mechanics; works through a model with guidance.
- FoundationcompletedKnows the vocabulary and the shape of each model.