Share buybacks
or even company announcements of a share buyback have had a similar
effect on the respective stock prices. The market is usually quick to
react positively to such news. But are share buybacks always beneficial
to investors? Before we answer this, let’s understand what a share
buyback is.
There are four basic options available to a company when it makes a profit: sit on the cash, re-invest it into profitable opportunities, pay a dividend or buyback shares.
Buyback is generally seen as a method of rewarding shareholders by returning excess cash to them, when a company doesn’t see good growth avenues to deploy its resources. This can be done in two ways:
It can tender an offer to existing stockholders to buy up to a certain number of shares at a fixed price within a fixed period of time, or,
It could offer to buy the shares in the open market over a period.
There are different motives that prompt the management to go in for a buyback of shares:
1. To reward shareholders: When a cash-rich company doesn’t see good growth avenues to deploy its resources, it can choose to return cash to its shareholders via buyback of shares. Such an action
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http://bhavikkshah.blogspot.
There are four basic options available to a company when it makes a profit: sit on the cash, re-invest it into profitable opportunities, pay a dividend or buyback shares.
Buyback is generally seen as a method of rewarding shareholders by returning excess cash to them, when a company doesn’t see good growth avenues to deploy its resources. This can be done in two ways:
It can tender an offer to existing stockholders to buy up to a certain number of shares at a fixed price within a fixed period of time, or,
It could offer to buy the shares in the open market over a period.
There are different motives that prompt the management to go in for a buyback of shares:
1. To reward shareholders: When a cash-rich company doesn’t see good growth avenues to deploy its resources, it can choose to return cash to its shareholders via buyback of shares. Such an action
READ HERE FOR MORE
http://bhavikkshah.blogspot.
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