3 Reasons Why A Company Should Consider Share Buybacks

The instances where share buybacks make perfect sense for a company

UPDATED: March 2022

3 Reasons Why A Company Should Consider Share Buybacks – An increasing number of companies are announcing share buybacks. The directors may believe that share buyback will positively impact shareholders and the business as a whole.

3 Reasons Why A Company Should Consider Share Buybacks

That’s why we will be looking at some of the most common reasons why a company would want to repurchase its shares and what benefits the shareholders will get as a result.

1. Take Advantage of Undervalued Share Price

One of the main reasons a company would think about repurchasing its shares is when the management believes that the company’s current shares are undervalued in the market. So, instead of keeping cash in the bank, the management decides to repurchase shares of the company at what they believe is a low price. There are two effects this buyback will have on the stock of the company:

  • The number of outstanding shares is reduced, and the pressure to buy increases as the company is buying its shares.
  • Management reassures the market that they are confident in their business operations when they spend millions to buy back their shares.

These two effects encourage investors to buy shares of the company. The market thinks that the management is only buying their shares because they believe that the value of these shares will rise in the future.

2. Increase Ownership and Reduce Dilution

Companies start issuing new shares over time through capital raising, or by exercising options, which reduces the dilution of existing shareholders. When a company repurchases its shares, it reduces the impact of that dilution. Reducing the number of outstanding shares also increases the ownership of the management of the company.

3. Enhancing Financial Ratios

Even though enhancing the financial ratios of the company isn’t the main reason for share buybacks, it is often a benefit that they gain when engaging in this activity. When the number of outstanding shares is reduced, it has a positive impact on the different ratios that are closely tracked in the market. These are known as the Return on Asset (ROA), Return on Equity (ROE), and Earnings per Share (EPS).

How Can Shareholders Benefit from a Share Buyback?

Share buybacks are a strategy from the capital management and are seen as a reward or benefit to shareholders. Even though investors benefit from dividends, when money is directly deposited into the bank account of the shareholder, there are indirect benefits of share buybacks. We have already highlighted that reducing the number of outstanding shares in the market increases the share price.

Conclusion to 3 Reasons Why A Company Should Consider Share Buybacks

The company returns cash to the shareholders and provides investors with the chance to cash in on their investment. The management shows their confidence in the company, which positively affects the market sentiment regarding the stocks.

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About the Author & How YOU Can Profit:  This article is the copyrighted product of the team at BuybackAnalytics.com  .

Buyback Analytics is a Top Tier Investing Platform to help investors find, analyze, and profit from investing opportunities not found through traditional investment tools. We specialize in this simple concept:  Follow the trades of Insiders – CONSISTENTLY PROFITABLE Traders, Investors, and Institutions because THEY get Inside Information that YOU don’t:

LEGAL Insider Trading / Inside Traders (CEOs, CFOs, Corporation’s Accountants & Attorneys, Politicians, etc.)
Stock Buybacks (Share Repurchases) by Public Corporations (ie. Apple, Tesla, Netflix, Meta (Facebook), Microsoft, etc.)
Market Moving Institutions (Examples: Market Makers, Investment Banks, Stock Brokerages, Hedge Funds, etc.)

Use of Our Articles: You are welcome to benefit from lots of FREE articles that you can read and learn from on our website blog.  You are also welcome to share or post this information as helpful content to your website or blog audience as long as the article, and this entire byline are left intact, word for word.  If you would like us to provide you with more, or bulk content for your blog or website to educate your audience on basic to expert financial and investor information & techniques, feel free to contact us at info@buybackanalytics.com .

4 Reasons Investors Like Share Buybacks

The main reasons why share buybacks are good news for investors

UPDATED: April 2022

4 Reasons Investors Like Share Buybacks – Companies that are successful generally get to a position where they generate more cash than they can reinvest back into the business. The market conditions have meant that investors are now putting pressure on companies to distribute all the wealth they have accumulated back to their shareholders. In general, companies have several options for returning wealth to shareholders by using dividends, stock price appreciations, or share buybacks.

4 Reasons Investors Like Share Buybacks

Dividends had been the commonly used form of distributing wealth to shareholders, but in recent times, buybacks have been seen as the best option for returning extra cash flow. Buybacks are valuable to investors who can turn their shares into gains in the future and defer on taxes. Buybacks also tend to benefit investors by returning money to shareholders efficiently and by increasing the prices of the shares. Here are some more reasons why investors like share buybacks:

1. Share Buybacks Improves Shareholder Value

Profitable companies can use several ways to measure the performance of their stocks, but the most common measurement is going to be earnings per share (EPS). These are generally viewed as the most important variable when determining the prices of shares. When companies start to use share buybacks, they will be reducing assets on their balance sheets and improves their return on assets. Taking this measure reduces the number of shares outstanding and maintains a similar level of profitability.

2. Share Buybacks Raise in Share Prices

Share prices can decrease when the economy isn’t doing well due to weaker than expected earnings. When this happens, a company will think about using a share buyback program as it believes that the shares of the company are undervalued. Most businesses will repurchase their shares and then sell them in the market when the price increases to reflect the company’s actual value. When the earnings per share start to increase, it will be seen positively by the market, and when buybacks are announced, it will raise share prices.

3. Share Buybacks Increase Tax Benefits

When there is excess cash used for buying back the company stock, rather than using it to raise dividend payments, it will allow shareholders to get rid of capital gains when the share prices increase. In general, buybacks aren’t highly taxed when compared to dividends, and this is good news for investors who are trying to get the maximum profit. They will not have to worry about paying a lot of taxes when they are buying back shares.

4. Share Buybacks Uses Extra Cash

Investors get the message that the company has excess cash on hand when they know that the company has started a buyback program. This development means that investors don’t need to worry about cash flow problems and can concentrate on other matters. It also gives investors the signal that the company wants to use cash to reimburse shareholders rather than reinvesting in assets.

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About the Author & How YOU Can Profit:  This article is the copyrighted product of the team at BuybackAnalytics.com .

Buyback Analytics is a Top Tier Investing Platform to help investors find, analyze, and profit from investing opportunities not found through traditional investment tools. We specialize in this simple concept:  Follow the trades of Insiders – CONSISTENTLY PROFITABLE Traders, Investors, and Institutions because THEY get Inside Information that YOU don’t:

LEGAL Insider Trading / Inside Traders (CEOs, CFOs, Corporation’s Accountants & Attorneys, Politicians, etc.)
Stock Buybacks (Share Repurchases) by Public Corporations (ie. Apple, Tesla, Netflix, Meta (Facebook), Microsoft, etc.)
Market Moving Institutions (Examples: Market Makers, Investment Banks, Stock Brokerages, Hedge Funds, etc.)

Use of Our Articles: You are welcome to benefit from lots of FREE articles that you can read and learn from on our website blog.  You are also welcome to share or post this information as helpful content to your website or blog audience as long as the article, and this entire byline are left intact, word for word.  If you would like us to provide you with more, or bulk content for your blog or website to educate your audience on basic to expert financial and investor information & techniques, feel free to contact us at info@buybackanalytics.com .