What it is:
To be accretive is to increaseper share.
How it works/Example:
This EPS of 25 cents this . Next year, it acquires Company ABC. The cost of the acquisition in per share is 10 cents, but when Company XYZ combines the operations and profits of Company ABC in with its own, this adds 12 cents per share. Company XYZ comes out 2 cents per share ahead, meaning the acquisition is accretive to .
Generally, an acquisition is accretive if the 's price/earnings ratio is higher than the target's price/earnings ratio. Theoretically, the target in this case is a relative bargain for the acquirer.
Why it matters:
Accretion is a good thing for companies because it adds to the bottom line and thus increases shareholder value, which is the goal of every company. Of course, not all acquisitions turn out to be accretive, despite all the forecasts saying so. Accordingly, the manner in which an integrates a target into its operations is key to ensuring that the expected materialize.