An acquisition is accretive when the buyer’s pro forma earnings per share, or EPS, is higher than its standalone EPS. It is dilutive when pro forma EPS is lower. If EPS is unchanged, the transaction is neutral.
Standalone EPS equals the buyer’s net income available to common shareholders divided by its diluted shares outstanding. Pro forma EPS reflects the buyer and target after the acquisition, including financing costs, new shares, synergies, and relevant purchase-accounting adjustments.
The core calculation is straightforward: divide pro forma combined net income by pro forma diluted shares outstanding, then compare that result with the buyer’s standalone EPS. Percentage accretion or dilution equals pro forma EPS divided by standalone EPS, minus one.
In an interview, lead with that definition before discussing shortcuts. A concise opening is: “An acquisition is accretive if the buyer’s pro forma EPS exceeds its standalone EPS and dilutive if it falls below. I would calculate the combined company’s adjusted net income, divide by the pro forma share count, and compare the result with the buyer’s original EPS.”