share buyback
A corporate action where a company purchases its own shares from the open market, reducing shares outstanding and typically increasing earnings per share.
Example
“Apple returned $90 billion to shareholders through share buybacks, reducing share count and boosting EPS.”
Memory Tip
SHARE BUYBACK = company buys its own stock. Fewer shares = each remaining share worth more.
Why It Matters
Share buybacks can affect your investment returns if you own stock in a company, as they may boost earnings per share and potentially increase stock price. Understanding buybacks helps you evaluate whether a company is using its cash wisely or if the money could be better spent on research, dividends, or debt reduction.
Common Misconception
Many people think buybacks always benefit shareholders, but this is not necessarily true. A company that buys back overpriced shares may actually destroy value, and buybacks funded by debt can weaken the company financially in the long term.
In Practice
Suppose a company has 100 million shares outstanding and earns 500 million dollars annually, giving earnings per share of 5 dollars. If the company uses 1 billion dollars to buy back 10 million shares, it reduces shares to 90 million, and earnings per share rise to 5.56 dollars even though total earnings remain the same.
Etymology
SHARE (ownership unit) BUYBACK (purchasing back). The company BUYS BACK its own SHARES.
Common Misspellings
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