What is Accretive?

In both finance and in general lexicon, the term "accretive" is the adjective form of the word "澳洲幸运5官方开奖结果体彩网:accretion", which refers to gradual or incremental growth. For example, an acquisition deal may be deemed accretive for the absorbing company, if that deal contributes to an increase in 澳洲幸运5官方开奖结果体彩网:earnings per share.

By definition, in corporate finance, 澳洲幸运5官方开奖结果体彩网:accretive acquisitions of assets or businesses must ultimately add more value to a company, than the expenditures associated with the acquisition. This can be due to the fact that the newly-acquired assets in question are purchased at a discount to their perceived 澳洲幸运5官方开奖结果体彩网:current market value, or if the assets are expected to grow, ꦚas a direct result of the transaction▨.

Key Takeaways
--The term "accretive" is an adjective that refers to business deals that result in gradual or incremental growth in value for a company.
--In corporate finance, accretive acquisitions of assets must add more value to a company, than the costs of acquiring the target entity,
--Accretive deals can occur if acquired assets are purchased at a discount to their perceived current market value.
--ꦕIn general finance, accretive investm🔜ents refer to any security that is purchased at a discount. 

Breaking Down Accretive

In general finance, accretion refers to the change in the price of a bond or security. In fixed-income investments, the word accretive may be used to describe the increase in value attributable to interest accrued but not paid. For example, discounted bonds earn interest through accretion, until they reach maturity. In such cases, acquired bonds are acquired 澳洲幸运5官方开奖结果体彩网:at a discount when compared to the 澳洲幸运5官方开奖结果体彩网:current face value of the bond, also known as the par. As the bond matures, the value increases, based on the 澳洲幸运5官方开奖结果体彩网:interest rate that was in effect at the time of issuance.

Determining the Rate of Accretion

The rate of accretion is determined by dividing the discount by the number of years in the term. In the case of zero coupon bonds, the interest acquired is not 澳洲幸运5官方开奖结果体彩网:compounded. While the value of the bond increases based on the🌸 agreed-upon interest rate, it must be held for the agreed-upon term, before it can be cash꧒ed out.

Examples of Accretion

If a person purchases a bond with a value of $1,000, for the disco💖unted price of $750, with the undeꦰrstanding that it will be held for 10 years, the deal is considered accretive, because the bond pays out the initial investment, plus interest. Depending on the type of bond purchased, interest may be paid out at regular intervals (annually, semi-annually, etc.), or it may be paid in lump sum, upon maturity.

With zero coupon bonds, there is no interest accrual. Instead, it is purchased at a discount, such as the initial $750 investment for a bond with a face value of $1,000. The bond pays the 澳洲幸运5官方开奖结果体彩网:original face value, also known as the 澳洲幸运5官方开奖结果体彩网:accreted value, of $1,000, in a lump sum upon maturity.

In corporate finance acquisition deals are often accretive. First, let's assume that the earnings per share of Corporation X is listed as $100, and earnings per share of Corporation Y is listed as $50. When Corporation X acquires Corporation Y, Corporations X’s earnings per share increase to $150--rendering this a 50% accretive deal.

[Important: The antonym to "accretive" is "dilutive", which describes any deal which causes a corporation's earnings per share value to drop.]