Share Buyback

Valuation & Fundamentals

A company buying its own shares in the market.

With fewer shares outstanding, each remaining share claims a larger slice of profit, so earnings per share rises even if net income stays the same. It is an alternative to dividends for returning cash to shareholders. Announcing a buyback program does not oblige the company to spend the full amount.

Example

If a company with net income of $1 billion cuts its share count from 500 million to 480 million, EPS rises from $2.00 to about $2.08.

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