Introduction
Accretive is a term that is often used in the business world. However, it can be confusing for those who are not familiar with it. In this article, we will define what accretive means and provide examples to help you better understand it.
What is Accretive?
Accretive is a term used to describe a situation where something is added to something else and increases in value. In the business world, accretive is often used to describe a merger or acquisition where the value of the combined company is greater than the sum of its parts.
Examples of Accretive
Let’s say Company A acquires Company B. If the value of the combined company is greater than the value of Company A and Company B separately, then the acquisition is considered accretive. This means that the acquisition has added value to the company and is seen as a positive move.
Another example of accretive is when a company buys back its own stock. If the company buys back its stock at a price lower than its intrinsic value, then the stock becomes more valuable and the company’s overall value increases. This is considered an accretive move.
What is Dilutive?
Dilutive is the opposite of accretive. Dilutive is used to describe a situation where something is subtracted from something else and decreases in value. In the business world, dilutive is often used to describe a merger or acquisition where the value of the combined company is less than the sum of its parts.
Examples of Dilutive
Let’s say Company A acquires Company B. If the value of the combined company is less than the value of Company A and Company B separately, then the acquisition is considered dilutive. This means that the acquisition has subtracted value from the company and is seen as a negative move.
Another example of dilutive is when a company issues new shares of stock. If the company issues new shares at a price lower than its intrinsic value, then the stock becomes less valuable and the company’s overall value decreases. This is considered a dilutive move.
Accretion and Dilution Analysis
Accretion and dilution analysis is a method used by analysts to determine the impact of a merger or acquisition on the value of the company. This analysis is used to determine whether the acquisition is accretive or dilutive.
The analysis involves comparing the earnings per share (EPS) of the combined company to the EPS of the acquirer or the target company. If the EPS of the combined company is higher than the EPS of the acquirer or the target company, then the acquisition is considered accretive. If the EPS of the combined company is lower than the EPS of the acquirer or the target company, then the acquisition is considered dilutive.
Conclusion
In conclusion, accretive is a term used to describe a situation where something is added to something else and increases in value. It is often used in the business world to describe a merger or acquisition. Dilutive is the opposite of accretive and is used to describe a situation where something is subtracted from something else and decreases in value. Accretion and dilution analysis is a method used by analysts to determine the impact of a merger or acquisition on the value of the company. Understanding these terms and their meanings is important for anyone interested in the business world.
