Accumulation

Accumulation refers to an increase in the equity of a business due to the retention of profits. Accumulation is most common in growing businesses that need the cash to pay for increases in working capital and fixed assets. A firm that is not experiencing much growth is more likely to reverse the accumulation process and pay out more dividends, since it has a reduced need for the excess cash.

The term can also refer to the continuing acquisition of raw materials in order to build reserves. A purchasing department might engage in this activity if it anticipates a future restriction in the amount of available raw materials, perhaps due to government regulations or the effects of a strike.

Accumulation can also refer to the ongoing purchase of a particular security. This could indicate that a business is attempting to acquire another business, or simply that it believes the security will provide an exceptional return on investment. These purchases may be spread over a period of time in order to avoid a run-up in the price of the securities being acquired.