What makes an acquisition accretive or dilutive to EPS?
Model answer
Compare the buyer's P/E to the effective cost of the acquisition. A rough all-stock rule: if the acquirer's P/E is higher than the target's P/E, the deal is accretive; if lower, dilutive. More generally, if the after-tax yield on what you're acquiring exceeds the after-tax cost of financing (cash, debt or stock), EPS rises.
⚠ Common wrong answer: "A deal is accretive when the target's P/E is higher than the acquirer's." Why it fails: Flipped — issuing 'expensive' high-P/E acquirer stock to buy 'cheaper' low-P/E earnings is what lifts EPS. Paying a HIGHER multiple than your own with stock means handing over more earnings yield than you receive: dilutive.
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