finance Finance refers to monetary resources and to the study and Academic discipline, discipline of money, currency, assets and Liability (financial accounting), liabilities. As a subject of study, is a field of Business administration, Business Admin ...

, the term accretion refers to a positive change in value following a transaction; it is applied in several contexts. When trading in bonds, accretion is the capital gain 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 an area of finance that deals with the sources of funding, and the capital structure of businesses, the actions that managers take to increase the Value investing, value of the firm to the shareholders, and the tools and analy ...

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, accretion is referred to as the increase in a company's earnings per share 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, Diluted EPS, Dilutive security; Swap ratio. In

accounting Accounting, also known as accountancy, is the process of recording and processing information about economic entity, economic entities, such as businesses and corporations. Accounting measures the results of an organization's economic activit ...

, an accretion expense 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 Embedded options Mergers and acquisitions Swaps (finance) {{investment-stub