finance Finance is the study and discipline of money, currency and capital assets. It is related to, but not synonymous with economics, the study of production, distribution, and consumption of money, assets, goods and services (the discipline of fina ...

, the term accretion refers to a positive change in value following a

transaction Transaction or transactional may refer to: Commerce * Financial transaction, an agreement, communication, or movement carried out between a buyer and a seller to exchange an asset for payment *Debits and credits in a Double-entry bookkeeping sys ...

; it is applied in several contexts. When trading in bonds, accretion is the

capital gain Capital gain is an economic concept defined as the profit earned on the sale of an asset which has increased in value over the holding period. An asset may include tangible property, a car, a business, or intangible property such as shares. ...

expected when a bond is bought at a discount to its par value,Accretion definition on the financial dictionary
/ref> given that, it is expected to mature at par. Accretion can be thought of as the antonym of amortization: Accreting swap vs Amortising swap. In a

corporate finance Corporate finance is the area of finance that deals with the sources of funding, the capital structure of corporations, the actions that managers take to increase the Value investing, value of the firm to the shareholders, and the tools and anal ...

context, accretion is essentially the actual value created after a particular transaction. A deal is earnings accretive if the acquirer's price-to-earnings ratio is greater than the target's price-to-earnings ratio, including the acquisition premium. Similarly, re

mergers and acquisitions Mergers and acquisitions (M&A) are business transactions in which the ownership of companies, other business organizations, or their operating units are transferred to or consolidated with another company or business organization. As an aspect ...

, accretion is referred to as the increase in a company's

earnings per share Earnings per share (EPS) is the monetary value of earnings per outstanding share of common stock for a company. It is a key measure of corporate profitability and is commonly used to price stocks. In the United States, the Financial Accounting ...

on a pro forma basis following the transaction. (For example, if Company A has $1.00 earnings per share and after acquiring Company B, the combined company's earnings per share is $1.25, then the acquisition would be referred to as 25% accretive). By contrast, a transaction is dilutive where the earnings per share decrease following the transaction. See:

Accretion/dilution analysis Accretion/dilution analysis is a type of M&A financial modelling performed in the pre-deal phase to evaluate the effect of the transaction on shareholder value and to check whether EPS for buying shareholders will increase or decrease post-deal ...

, Diluted EPS, Dilutive security;

Swap ratio In corporate finance, the swap ratio is an exchange rate of the shares of the companies that undergo a merger; see Stock swap and . The swap ratio determines the control that each group of shareholders of the companies shall have over the ...

. In

accounting Accounting, also known as accountancy, is the measurement, processing, and communication of financial and non financial information about economic entities such as businesses and corporations. Accounting, which has been called the "languag ...

, an

accretion expense In accounting, an accretion expense is a periodic expense recognized when updating the present value of a balance sheet liability (accounting), liability, which has arisen from a company's obligation to perform a duty in the future, and is being me ...

is created when updating the present value (PV) of an instrument. (For example, if the present value of a liability was originally recognized at $650, which has a future value (FV) of $1000, then every year one must increase the PV of the liability as it comes closer to its FV. If the above liability, for example an asset retirement obligation, had a discount rate of 10%, the accretion expense in year 1 would be $65 and the PV of the liability at the end of year 1 would be $715.) Since the statement dates will not necessarily coincide with the anniversary dates of these commitments, the expense is prorated.

References

Bonds (finance) Bond_valuation Corporate finance Mergers and acquisitions Embedded options Swaps (finance) {{investment-stub