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Shares / Re: Share Buyback
« on: March 10, 2015, 11:32:00 am »
Google'd - So I learn as well.
Share repurchases are an alternative to dividends. When a company repurchases its own shares, it reduces the number of shares held by the public. The reduction of the float,[6] or publicly traded shares, means that even if profits remain the same, the earnings per share increase.
There is strong evidence that companies are able to profitably repurchase shares when the company is widely held by retail investors who are unsophisticated (e.g., small investors) and more likely to sell their shares to the company when those shares are undervalued.[3] By contrast, when the company is held primarily by insiders and institutional investors, who are more sophisticated, it is harder for companies to profitably repurchase shares.[3] Companies can also more readily repurchase shares at a profit when the stock is liquidly traded and the companies' activity is less likely to move the share price.
Share repurchases avoid the accumulation of excessive amounts of cash in the corporation. Companies with strong cash generation and limited needs for capital spending will accumulate cash on the balance sheet, which makes the company a more attractive target for takeover, since the cash can be used to pay down the debt incurred to carry out the acquisition. Anti-takeover strategies, therefore, often include maintaining a lean cash position and share repurchases bolster the stock price, making a takeover more expensive
Share repurchases are an alternative to dividends
Aside from paying out free cash flow, repurchases may also be used to signal and/or take advantage of undervaluation. If a firm's manager believes their firm's stock is currently trading below its intrinsic value they may consider repurchases
Share repurchases are an alternative to dividends. When a company repurchases its own shares, it reduces the number of shares held by the public. The reduction of the float,[6] or publicly traded shares, means that even if profits remain the same, the earnings per share increase.
There is strong evidence that companies are able to profitably repurchase shares when the company is widely held by retail investors who are unsophisticated (e.g., small investors) and more likely to sell their shares to the company when those shares are undervalued.[3] By contrast, when the company is held primarily by insiders and institutional investors, who are more sophisticated, it is harder for companies to profitably repurchase shares.[3] Companies can also more readily repurchase shares at a profit when the stock is liquidly traded and the companies' activity is less likely to move the share price.
Share repurchases avoid the accumulation of excessive amounts of cash in the corporation. Companies with strong cash generation and limited needs for capital spending will accumulate cash on the balance sheet, which makes the company a more attractive target for takeover, since the cash can be used to pay down the debt incurred to carry out the acquisition. Anti-takeover strategies, therefore, often include maintaining a lean cash position and share repurchases bolster the stock price, making a takeover more expensive
Share repurchases are an alternative to dividends
Aside from paying out free cash flow, repurchases may also be used to signal and/or take advantage of undervaluation. If a firm's manager believes their firm's stock is currently trading below its intrinsic value they may consider repurchases
for the future
