IB INTERVIEW FOUNDATIONS
M&A, accretion & purchase accounting
Distinguish earnings accretion from value creation.
A transaction can raise EPS while destroying economic value. Financing, foregone interest and share issuance affect reported accretion; risk-adjusted incremental cash flows and the price paid govern the value question. Purchase accounting introduces another set of definitions.
Ask yourself: What does this metric tell you—and what does it leave out?
Put it into practice
Begin with cash-funded EPS. Then work through identifiable net assets and goodwill, keeping equity consideration distinct from enterprise value.
Beyond the calculation
State assumptions before calculating. Explain the result in plain English, then identify what information could change your conclusion. A numerical match alone does not show that your reasoning is sound.