Deep Dive: Accretion/Dilution Analysis Explained — How to Evaluate Whether a Merger Creates or Destroys Value
When a company announces an acquisition, one of the first questions Wall Street analysts ask is whether the deal will be accretive or dilutive to earnings per share (EPS). This single metric — accretion/dilution analysis — often determines how the market reacts to a deal announcement and whether acquiring company shareholders should celebrate or sell. Accretion/dilution analysis is the financial framework used to determine whether a proposed merger or acquisition will increase (accrete) or decrease (dilute) the acquiring company's earnings per share. It is arguably the most important quantitative test applied to any M&A transaction, and understanding it gives investors a significant edge in evaluating deal announcements. With the Paramount-Warner Bros. Discovery mega-deal dominating headlines and the Federal Reserve's easing cycle (fed funds at 3.64% as of January 2026, down from 4.33% in August 2025) fuelling increased dealmaking conditions, understanding accretion/dilution analysis has never been more practical for individual investors.