Technical / Deal Mechanics

M&A Math Cheat Sheet: EPS Method

Master the EPS method for M&A accretion analysis. A cheat sheet covering the key formulas, the split-paper framework, and common interview traps.

MN·4 min read·

"In God we trust. All others must bring data." — W. Edwards Deming

Core Relationships

Two formula clusters connected by Shares Outstanding.

Company Level:

Market Cap = Earnings \times P/E

Earnings = \frac{Market Cap}{P/E}

P/E = \frac{Market Cap}{Earnings}

Per Share:

Share Price = EPS \times P/E

EPS = \frac{Share Price}{P/E}

P/E

The Bridge:

Share Price = \frac{Market Cap}{Shares}

EPS = Shares

Split your paper. Left: given inputs. Right: solve sequence.

Earnings = \frac{Market Cap}{P/E}

EPS_{A} =

Purchase Price:

Purchase Price = Target Equity Value \times (1 + Premium)

ΔEarnings:

EPS_{PF} = \frac{Earnings}{Shares _{A} + New Shares}

Revenue (A, B)	1. Standalone EPS_A
EBITDA (A, B)	2. Deal Adjustments
P/E (A, B)	3. Pro Forma EPS
Shares_A, Price (A, B)
Premium, Mix, Tax Rate, Interest Rate

Forgetting tax shield	Interest is after-tax: $\times (1 - t)$
Wrong share price	New shares use acquirer's price
Missing premium	Offer P/E = Trading P/E $\times (1 + Premium)$
Pre-tax synergies	Synergies flow through income statement—apply tax