A share repurchase is a program by which a company buys back its own shares from the marketplace, usually because management thinks the shares are undervalued , reducing the number of outstanding shares.

The company buys shares directly from the market or offers its shareholders the option of tendering their shares directly to the company at a fixed price. Because a share repurchase reduces the number of shares outstanding, it increases earnings per share and elevates the market value of the remaining shares.

Stock Buyback Definition

After repurchase, the shares are canceled or held as treasury shares , so they are no longer held publicly and are not outstanding. A share repurchase reduces the total assets of the business so that its return on assets , return on equity and other metrics improve when compared to not repurchasing shares.

Stock buyback Definition - irudivupic.web.fc2.com

Reducing the number of shares means earnings per share EPS , revenue and cash flow grow more quickly. If the business pays out the same amount of total money to shareholders annually in dividends, and the total number of shares decreases, each shareholder receives a larger annual dividend.

If the corporation grows its earnings and its total dividend payout , decreasing the total number of shares further increases the dividend growth. Shareholders expect a corporation paying regular dividends will continue doing so. Share repurchase fills the gap between excess capital and dividends so that the business returns more to shareholders without locking into a pattern.

The share repurchase reduces the number of existing shares, making each worth a greater percentage of the corporation. A share repurchase shows investors the business has enough money set aside for emergencies and a low probability of economic troubles.

A share repurchase can give investors the impression that the corporation does not have other profitable opportunities for growth, which is an issue for growth investors looking for revenue and profit increases.

A corporation is not obligated to repurchase shares due to changes in the marketplace or economy. Repurchasing shares puts a business in a precarious situation if the economy takes a downturn or the corporation faces financial issues it cannot cover. Dictionary Term Of The Day. A measure of what it costs an investment company to operate a mutual fund.

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Share repurchase - Wikipedia

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