How can a top-down analysis of accretion/dilution impact EPS?

In the context of mergers and acquisitions, a top-down analysis of accretion/dilution is crucial for understanding how such transactions will affect a company's earnings per share (EPS). The correct approach in this scenario is to adjust revenues before combining financials, which is essential for accurately predicting the impact on EPS.

Adjusting revenues allows analysts to account for changes that could arise from the merger or acquisition, such as new revenue streams or additional market opportunities created by combining operations. This proactive step helps ensure that the revenue figures used in conjunction with the expenses lead to a more precise calculation of the combined company's EPS. By refining the revenue estimates ahead of time, stakeholders can better gauge whether the transaction will be accretive (increasing EPS) or dilutive (decreasing EPS).

In contrast, focusing solely on the buyer's EPS, combining income statements starting with expenses, or analyzing synergies and cost savings first would not provide the comprehensive overview necessary for an accurate accretion/dilution analysis. Each of those approaches could overlook significant factors that influence the overall earnings potential post-transaction. Thus, adjusting revenues before merging financials is vital in accurately assessing EPS impacts from a top-down perspective.