Accretion/dilution percent is calculated as which formula?

• A. (PF EPS - standalone EPS) / standalone EPS
• B. PF EPS / standalone EPS
• C. (Standalone EPS - PF EPS) / PF EPS
• D. PF Net Income / PF Shares

Answer: (A)

The main idea is to measure how the deal changes earnings per share (EPS) relative to the pre-deal baseline. Accretion/dilution percent is calculated by comparing the post-transaction pro forma EPS to the standalone (pre-deal) EPS and expressing the difference as a percentage of the standalone EPS:

PF EPS minus standalone EPS, divided by standalone EPS.

If the result is positive, the deal is accretive to EPS; if negative, it’s dilutive. For example, with a PF EPS of 2.60 and a standalone EPS of 2.00, the accretion is (2.60 − 2.00) / 2.00 = 0.60 / 2.00 = 30%. If PF EPS is 1.90, the result is (1.90 − 2.00) / 2.00 = −0.10 / 2.00 = −5% dilution.

This formula is the standard way to express the net EPS impact of a deal as a percentage of the baseline EPS. The other formulas don’t capture the percent change in EPS relative to the pre-deal EPS.