Absorbed
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 Definitions
Articles Of Interest
-
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. -
Understanding Pro-Forma Earnings
These figures can either shed light on a company's performance or skew it. Find out why. -
Understanding The Income Statement
Learn how to use revenue and expenses, among other factors, to break down and analyze a company. -
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. -
Top 8 Ways Companies Cook The Books
Find out more about the fraudulent accounting methods some companies use to fool investors. -
Earnings: Quality Means Everything
It's quantity that generates all the hype, but there are more meaningful factors that gauge true performance. -
The Ins and Outs Of In-Process R&D Expenses
Are these charge-offs fair accounting or earnings manipulation? Learn more here. -
What Is Private Equity?
This investment vehicle attracts wealthy investors to increase the value of portfolio companies. -
War's Influence On Wall Street
Blitzkrieg? Dawn raids? Sounds like the markets and the battlefield have a few things in common. -
Pay Attention To The Proxy Statement
Don't overlook this overview of a company's well-being.
Free Annual Reports