Company A’s P/E is 10x, Company B’s P/E is 8x. If your cost of financing was 12%, would the transaction be accretive or dilutive?

Published On - April 22, 2023

Josh Corporate Banking / Commercial Banking / Private Debt, Corporate Development, Financial Modeling, FP&A, Investment Banking, Private Equity

Earnings yield of the target is the reciprocal of the P/E, or 1/8=12.5%

12.5% > 12%, earnings yield of target > cost of financing

Therefore the deal is accretive.