What is earnings accretion/dilution?

Earnings accretion/dilution refers specifically to the impact of acquisitions on earnings per share (EPS). In the context of a merger or acquisition, when evaluating whether the transaction will be accretive or dilutive to the acquiring company's EPS, analysts assess how the acquired company's earnings will affect the overall earnings available to shareholders post-transaction.

If the transaction leads to a higher EPS after the merger compared to before (taking into consideration any additional shares issued), it is considered accretive. Conversely, if the EPS decreases, the transaction is deemed dilutive. This metric is critical for investors and management to understand the financial implications of a merger or acquisition on shareholder value.

The other options do not address the concept accurately. The increase of company assets post-merger pertains to the balance sheet aspects, not EPS. The ratio of debt to equity is a financial leverage measurement, which does not focus on earnings or share performance. The increase or decrease in employee numbers relates to operational changes rather than financial metrics relevant to earnings per share.