Accretion (finance)
In finance, 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, given that it is expected to mature at par. Accretion can be thought of as the antonym of amortization: see here also, Accreting swap vs Amortising swap.
In a corporate finance 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.
Similarity, 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.
By contrast, a transaction is dilutive where the earnings per share decreases following the transaction.
See: Accretion/dilution analysis, Diluted EPS, Dilutive security; Swap ratio.
In accounting, an accretion expense is created when updating the present value of an instrument. Since the statement dates will not necessarily coincide with the anniversary dates of these commitments, the expense is prorated.
