# Understanding Accretive Growth in Finance: Definitions and Examples

## What Is Accretive?

In both finance and in general usage, the term "accretive" is the adjective form of the word "[accretion](https://www.investopedia.com/terms/a/accretion.asp)", which refers to gradual or incremental growth. For example, an acquisition deal may be deemed accretive if that deal contributes to an increase in the acquiring company's [earnings per share](https://www.investopedia.com/terms/e/eps.asp).

In corporate finance, [accretive acquisitions](https://www.investopedia.com/terms/a/accretiveacquisition.asp) must add more value to a company than the costs involved. This can occur if the newly-acquired assets in question are purchased at a discount, or if the assets are expected to grow as a direct result of the transaction. 

### Key Takeaways

*   Accretive deals result in gradual or incremental value growth for a company.  
    
*   In corporate finance, accretive acquisitions add more value than the costs of acquiring the target.  
    
*   Accretive investments refer to securities bought at a discount, gaining value over time.  
    
*   Bonds purchased at a discount that gain value as they mature are examples of accretive investments.  
    
*   In acquisitions, if a company's earnings per share increase after a deal, it's considered accretive.  
    

## Understanding Accretive Growth

In finance, accretive investments are securities bought at a discount. In fixed-income investments, the word accretive may be used to describe the increase in value attributable to interest accrued but not paid. For example, discounted bonds earn interest through accretion until they reach maturity. In such cases, acquired bonds are acquired [at a discount](https://www.investopedia.com/terms/a/at-a-discount.asp) when compared to the [current face](https://www.investopedia.com/terms/c/current_face.asp) value of the bond, also known as the par. As the bond matures, the value increases, based on the [interest rate](https://www.investopedia.com/terms/i/interestrate.asp) that was in effect at the time of issuance.

## How to Calculate the Accretion Rate

The rate of accretion is determined by dividing the discount by the number of years in the term. In the case of zero-[coupon](https://www.investopedia.com/terms/c/coupon.asp) bonds, the interest acquired is not [compounded](https://www.investopedia.com/terms/c/compounding.asp). While the value of the bond increases based on the agreed-upon interest rate, it must be held for the agreed-upon term before it can be cashed out.

> **Fast Fact**
>
> The antonym of "accretive" is "dilutive", which describes any deal that causes a corporation's earnings per share value to drop.

## Examples of Accretive Investments

If a person purchases a bond with a value of $1,000 for the discounted price of $750, with the understanding that it will be held for 10 years, the deal is considered accretive because the bond pays out the initial investment, plus interest. Depending on the type of bond purchased, interest may be paid out at regular intervals (annually, semi-annually, etc.), or it may be paid in a lump sum upon maturity.

With zero-coupon bonds, there is no interest accrual. Instead, it is purchased at a discount, such as the initial $750 investment for a bond with a face value of $1,000. The bond pays the [original face](https://www.investopedia.com/terms/o/original_face.asp) value, also known as the [accreted value](https://www.investopedia.com/terms/a/accreted-value.asp), of $1,000, in a lump sum upon maturity.

In corporate finance, acquisition deals are often accretive. First, let's assume that the earnings per share of Corporation X are listed as $100, and the earnings per share of Corporation Y are listed as $50. When Corporation X acquires Corporation Y, Corporation X’s earnings per share increase to $150--rendering this a 50% accretive deal.