What is a crucial step in performing an accretion/dilution analysis?

Calculating the pro forma net income and adjusted share count is a critical step in performing an accretion/dilution analysis because it directly measures the impact of a merger or acquisition on the earnings per share (EPS) of the acquiring company. In this analysis, the pro forma net income represents the combined earnings of both companies after the transaction, including any synergies, cost savings, or additional expenses resulting from the integration.

The adjusted share count is equally important as it reflects how the transaction will alter the number of shares outstanding, either through the issuance of new shares to finance the acquisition or other changes in the equity structure. By comparing the pro forma EPS to the acquiring company's standalone EPS, analysts can determine whether the deal will be accretive (increasing EPS) or dilutive (decreasing EPS) to shareholders, which is a key consideration for the financial feasibility and attractiveness of the transaction.

Other options, while relevant to the overall due diligence process of a merger or acquisition, do not directly address the immediate financial impact on shareholders as measured by the accretion/dilution analysis.