- Accretion (finance)
finance, accretion is the change in the price of a bond bought at a discount to the par valueof the bond [ [http://financial-dictionary.thefreedictionary.com/accretion Accretion definition on the financial dictionary] ] .
Accretion, in a corporate finance environment, is essentially the actual value created after a particular transaction. A deal will always be earnings accretive if the acquirer's price-to-earnings ratio is greater than the target's price-to-earnings ratio, including the acquisition premium.
accounting, accretion expenseis the expense created when updating the present value of an instrument. For example, if you originally recognize the present value of a liability at $650, which has a future value of $1000, every year you 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%, accretion expense in Yr.1 would be $65 and the PV of the liability at the end of Yr.1 would be $715.
In the context of
mergersand acquisitions, accretion is referred to as the increase in a company's earnings per shareon a pro formabasis 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. In contrast, a transaction is dilutiveif the earnings per share decreases following the transaction.
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