Which of the following indicates a successful acquisition if the pro forma EPS is higher than the pre-acquisition EPS?

When a pro forma earnings per share (EPS) is higher than the pre-acquisition EPS, it indicates that the acquisition has added value to the shareholders of the acquiring company. This situation is referred to as an accretive acquisition. Essentially, an accretive transaction increases the overall earnings attributed to each share of stock, meaning that shareholders can expect to see an increase in their portion of the company's profits after the deal is completed.

The reasoning behind this is that the financial benefits gained from the acquisition, such as increased revenue or cost synergies, outweigh the costs associated with acquiring the target company. As a result, the combined earnings of both companies post-acquisition lead to a higher EPS compared to what was previously available to shareholders. This outcome is seen as favorable, conveying that the acquisition was successful in enhancing shareholder value.

In contrast, if the pro forma EPS were lower than the pre-acquisition EPS, the acquisition would be considered dilutive, implying a reduction in shareholder value. A neutral impact on EPS would mean that there is no significant change, while a negative outcome would suggest a detrimental effect on shareholder returns. Thus, an increase in pro forma EPS is a strong indicator of a successful and value-enhancing acquisition.