What Is A Share Buyback?

moneyA share buyback, which is also known as a share repurchase, is when a company buys back its own shares from the market. The company may choose to tender for the shares or simply buy them directly from the market at the prevailing price.

A company may decide to buy back its shares for a number of reasons. Firstly, it can be a way of returning cash to shareholders. By reducing the number of shares in circulation, the earnings per share should increase in proportion to the number of shares repurchased. So, if all things remain equal, that is profits are unchanged, then the share price should rise.

A company may also decide to buy back its shares because it can’t think of anything better to do with its cash hoard. If a company thinks that it may be sitting on too much cash it can choose to return the cash to shareholders either by paying a higher dividend or buying back shares.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore Director David Kuo doesn’t own shares in any companies mentioned.