4.2·8 min read

Pro Forma EPS & the Verdict

Tax the adjusted earnings, divide by the new share count, and compare to the buyer's standalone EPS.

By the end you can

✓Compute pro forma EPS
✓Deliver the accretion/(dilution) verdict

\text{Pro Forma EPS} = \frac{\text{Adjusted Pre-Tax} \times (1 - \text{Tax})}{\text{Buyer Shares} + \text{New Shares}}

Numerator: pro forma net income. Denominator: the diluted share count after issuance.

Worked example · Finish the deal

Given

•Adjusted pre-tax income: $3,457M
•Tax rate: 20%
•Buyer shares: 600M + 50M new = 650M
•Buyer standalone EPS: $4.00

Solution

1.Taxes
$3{,}457 \times 20\% = \$691\text{M}$
2. net income
$3{,}457 - 691 = \$2{,}766\text{M}$
3.
$2{,}766 / 650 = \$4.26$
4. / ()
$\frac{4.26}{4.00} - 1 = 6.4\%$

Answer

rises to ~$4.26, so the deal is about 6.4% . more than offset the new shares, interest, and .

The whole model in one line

Everything you built - price, , fees, , , - exists to move the numerator ( net income) and the denominator ( shares). is just whether the ratio beat the buyer's old EPS.

Check yourself

Pro forma net income is $2,600M on 650M shares; standalone EPS was $4.00. The deal is:

Practice in the simulator

Lock it in by building it yourself in a live, graded spreadsheet.

Run an accretion/dilution analysis in the simulator →

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From Standalone to Pro Forma

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The P/E Rule of Thumb