Article at a glance:

Merger valuation: Time to jettison EPS

Under new accounting rules, few if any aquisitions appear to dilute earnings per share—but this doesn't mean that acquisitions are any more likely to create value. Even those that appear to increase a company's earnings per share can actually destroy it.

The take-away

In view of the changed accounting rules, executives and directors should stop using earnings per share as a proxy for how much value an acquisition will create and focus instead on more reliable measures, such as a deal's impact on economic profit.