accretion dilution analysis
An M&A analysis measuring whether an acquisition increases (accretive) or decreases (dilutive) the acquirer's earnings per share.
Example
“The accretion dilution analysis showed the all-stock deal was 5% dilutive in year one but accretive by year three.”
Memory Tip
ACCRETION/DILUTION = does the acquisition HELP or HURT earnings per share? Key M&A test.
Why It Matters
Understanding accretion dilution analysis helps investors and shareholders evaluate whether a company is making smart acquisition decisions that will benefit them. When a company acquires another business, you want to know if it will actually increase your earnings per share or if the deal will hurt your investment value in the short term.
Common Misconception
Many people assume that a larger company or a bigger acquisition is always better for shareholders, but accretion dilution analysis reveals that size does not determine value. A large acquisition can be dilutive and reduce earnings per share, while a smaller strategic purchase might be highly accretive and boost shareholder value.
In Practice
Imagine Company A with 100 million shares outstanding earns 500 million dollars annually, giving earnings per share of 5 dollars. If Company A acquires Company B for 2 billion dollars but Company B only generates 50 million in annual earnings, the combined entity now has 550 million in earnings spread across more shares, which could reduce the earnings per share below 5 dollars, making the deal dilutive to existing shareholders.
Etymology
ACCRETION (growth, addition) DILUTION (reduction) ANALYSIS. Does the deal ADD to or REDUCE earnings per share?
Common Misspellings
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Related Terms
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See Also
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