Reading a real buyer's EPS and P/E
AAPL — EPS, P/E Ratio. Open AAPL on the Ledge to see current values.
When a deal turns accretive
Accretive if: Target EPS Contribution > Financing Cost per Share
Why P/E arithmetic drives accretion
A deal is accretive simply because a higher-P/E buyer acquires a lower-P/E target — this is arithmetic, not value creation. Accretion analysis is necessary but not sufficient for evaluating a deal.
Testing whether accretion masks overpayment
If a company with a 25x P/E acquires one with 12x P/E, the deal is almost certainly accretive. But ask: did they overpay? Is the target’s lower P/E justified by slower growth or higher risk?
Whether EPS accretion lifts the stock
A deal is 15% accretive to EPS in Year 1. Does this mean the acquirer’s stock should rise 15%?
Accretion versus real value creation
When a stock deal adds to EPS instead of diluting it
Company A (P/E 25) acquires Company B (P/E 15) with 100% stock. Before deal: A's EPS $4, B's EPS $2. Post-deal share count rises 30%. Is the deal accretive or dilutive to A's EPS?
Check your understanding
Sit with the ideas.
Buyer has P/E of 25x (earnings yield 4%). They acquire a target with P/E of 10x (earnings yield 10%) using all debt at 5% interest. Is the deal accretive or dilutive?
Why: