Absorbed

AAA

DEFINITION of 'Absorbed'

1. In a general business sense, when a cost is treated as an expense instead of being passed on to the customer in the form of higher prices.

2. In underwriting, when an issue has been completely sold to the public. However, the underwriter may absorb (purchase) any shares it is unable to sell in the IPO in order to support the company's share price.

3. In mergers, when an acquired firm is folded into the acquiring company. The acquired firm is said to have been "absorbed" and the acquiring firm is called the "absorbing firm." This type of merger is called an "absorption."

INVESTOPEDIA EXPLAINS 'Absorbed'

1. For example, if a peanut butter company's cost for peanuts increases from 50 cents per jar to $1.00 per jar but the company keeps the cost of one jar at $3 instead of raising it to $3.50, it has absorbed the increase in peanut prices.

2. There are several basic types of agreements underwriters can make to sell the issuing company's stock. In a best efforts agreement, the underwriter is not responsible for any unsold shares and they revert to the issuer. In a bought deal, the underwriter agrees to buy all the shares and must resell them to recoup its investment. In a standby agreement, the underwriter specifically agrees to absorb any unsold shares.

3. An alternative to absorption is the creation of a new company. These different choices have different tax implications for both the company and its shareholders.

RELATED TERMS
  1. Explicit Cost

    A business expense that is easily identified and accounted for. ...
  2. Expense

    1. The economic costs that a business incurs through its operations ...
  3. Selling, General & Administrative ...

    Reported on the income statement, it is the sum of all direct ...
  4. Shock Absorber

    A temporary restriction placed on the trading of index futures ...
  5. Direct Cost

    A price that can be completely attributed to the production of ...
  6. Merger

    The combining of two or more companies, generally by offering ...
Related Articles
  1. Investing

    Earnings: Quality Means Everything

    It's quantity that generates all the hype, but there are more meaningful factors that gauge true performance.
  2. Personal Finance

    Top 8 Ways Companies Cook The Books

    Find out more about the fraudulent accounting methods some companies use to fool investors.
  3. Entrepreneurship

    Tax Credit For Plan Expenses Incurred By Small Businesses

    Determine whether your business is eligible to claim a tax credit for establishing a retirement plan.
  4. Fundamental Analysis

    Understanding Pro-Forma Earnings

    These figures can either shed light on a company's performance or skew it. Find out why.
  5. Forex Education

    Understanding The Income Statement

    Learn how to use revenue and expenses, among other factors, to break down and analyze a company.
  6. Retirement

    The Essentials Of Corporate Cash Flow

    Tune out the accounting noise and see whether a company is generating the stuff it needs to sustain itself.
  7. Investing

    The Ins and Outs Of In-Process R&D Expenses

    Are these charge-offs fair accounting or earnings manipulation? Learn more here.
  8. Fundamental Analysis

    The Future of Big Pharma Stocks

    A look at the future health of big pharma stocks.
  9. Trading Strategies

    How to Do the Fundamental And Technical Combo Trade

    Fundamental and technical analyses should be viewed as complementary rather than competing practices. When combined, these two methods can greatly strengthen your game.
  10. Stock Analysis

    Will Kraft-Heinz Be a Winner?

    Kraft and Heinz are now one. This should present a profitable long-term investment opportunity, but isn't likely to be smooth sailing at first.

You May Also Like

Hot Definitions
  1. Asset Class

    A group of securities that exhibit similar characteristics, behave similarly in the marketplace, and are subject to the same ...
  2. Fiat Money

    Currency that a government has declared to be legal tender, but is not backed by a physical commodity. The value of fiat ...
  3. Interest Rate Risk

    The risk that an investment's value will change due to a change in the absolute level of interest rates, in the spread between ...
  4. Income Effect

    In the context of economic theory, the income effect is the change in an individual's or economy's income and how that change ...
  5. Price-To-Sales Ratio - PSR

    A valuation ratio that compares a company’s stock price to its revenues. The price-to-sales ratio is an indicator of the ...
  6. Hurdle Rate

    The minimum rate of return on a project or investment required by a manager or investor. In order to compensate for risk, ...
Trading Center