Definition of Accretive
What is the definition of "accretive" as it applies to the stock market? What does the term accretive mean?
The dictionary defines accretive as "an increase by natural growth or by gradual external addition".
If you have stumbled across the word "accretive" on a financial news site, then chances are that there was a merger involved.
The term "accretive" is usually used in conjunction with earnings per share. For instance:
"XYZ bought ABC today for $85 million, and they expect that the transaction will be immediately accretive to earnings."
Let's break this down.
Before XYZ purchased ABC, XYZ's earnings per share was $1.00.
After the deal for ABC closed, the new combined company had earnings per share of $1.25.
Something was added (ABC), that resulted in an increase in size. In this case, earnings increased.
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