A company initiates several actions apart from those related to business, that has a direct implication for its stakeholders.
These actions are termed Corporate Actions.
#StockMarket
These actions are termed Corporate Actions.
#StockMarket
Suppose a company has excess cash on its balance sheet.
It may use the money:
• To expand business
• To reduce its liability by paying back borrowings if any
• To distribute to the shareholders.
#money #Corporate
It may use the money:
• To expand business
• To reduce its liability by paying back borrowings if any
• To distribute to the shareholders.
#money #Corporate
If it chooses the 3rd option, it can reward the shareholders in two ways.
1. By paying dividends.
2. Offering the shareholders to have the money through selling their shares back to the business known as buyback of shares.
Also known as the repurchase of shares.
1. By paying dividends.
2. Offering the shareholders to have the money through selling their shares back to the business known as buyback of shares.
Also known as the repurchase of shares.
Motives of buyback could be:
• To give a valuable boost to the stock if its undervalued
• To show confidence of promoters in the company
• To prevent other companies from taking over
• Improve profitability on per-share basis
• Excess cash & lack of investment opportunities
• To give a valuable boost to the stock if its undervalued
• To show confidence of promoters in the company
• To prevent other companies from taking over
• Improve profitability on per-share basis
• Excess cash & lack of investment opportunities
But what's in it for shareholders like us?
• It reduces the number of outstanding shares in the market.
• Due to which the market value of a share may go up.
• Improves EPS, ROE & ROA.
• We may enjoy higher dividends on each share.
#sharemarket
• It reduces the number of outstanding shares in the market.
• Due to which the market value of a share may go up.
• Improves EPS, ROE & ROA.
• We may enjoy higher dividends on each share.
#sharemarket
While we have talked about the +ve impact of buyback on shareholders, it is difficult to ascertain management intention on buyback of shares.
#inflation
#inflation
⚠️There can be an unrealistic increase in EPS, ROA & ROE.
⚠️The company may look good.
⚠️But the increase is not because of profitability. It's because of a decrease in the outstanding number of shares.
⚠️The company may look good.
⚠️But the increase is not because of profitability. It's because of a decrease in the outstanding number of shares.
To conclude:
➡️Share repurchase by companies has always had its pros & cons for management as well as shareholders.
➡️Therefore as an investor one must verify the reason for transactions to make an informed decision.
#decisions #business
➡️Share repurchase by companies has always had its pros & cons for management as well as shareholders.
➡️Therefore as an investor one must verify the reason for transactions to make an informed decision.
#decisions #business
Don’t judge a stock based solely on the company’s buyback.
✅Doing your own research & comparing it with other valuation metrics on ticker.finology.in is worth considering.
✅Doing your own research & comparing it with other valuation metrics on ticker.finology.in is worth considering.
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