Share Buyback
A share buyback occurs when a company purchases its own outstanding shares from the marketplace. This reduces the number of shares available and often increases the value of the remaining shares. Companies typically initiate buybacks when they believe their shares are undervalued or to improve financial ratios like earnings per share (EPS). Share buybacks can also signal confidence in the company’s future prospects.
Example
A company with excess cash may decide to buy back 10% of its outstanding shares to reduce the total number of shares in the market and boost its stock price.
Key points
• A company repurchases its shares, reducing the total number of shares available.
• Often increases share value and improves financial metrics like EPS.
• Signals company confidence in its performance.
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