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.  
(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 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.  (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.)  Since the statement dates will not necessarily coincide with the anniversary dates of these commitments, the expense is prorated.

References

Category:Bonds (finance)
Category:Bond_valuation
Category:Corporate finance
Category:Mergers and acquisitions
Category:Embedded options
Category:Swaps (finance)