Share Buyback Advantages And Disadvantages

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Accelerated Buy Backs Introduction to Share Buybacks:

A share buyback, also known as repurchase, means that the company purchases its own shares in order to reduce the outstanding shares in the open market. The reduction in the number of shares outstanding in the market eliminates any potential threats from the shareholders who may be looking for a controlling stake in the company. Using a buyback, the company invests in itself, which improves the proportional share of earnings; this steps up the valuation of a stock. When active investors believe that the company’s stocks have not performed in line with the market, they carry out buyback programs.

Introduction to Accelerated Buybacks: An “accelerated” buy back is also known as an accelerated
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Apart from boosting earnings per share, buyback program reduces the value of the assets on the balance sheet. As a result of this, the shareholders’ funds, the return on assets and return on equity increase because the balance sheet has to remain balanced. Mostly, the repurchase programs target the short sighted investors. Methods used by companies to repurchase shares: There are primarily four ways, using which the companies can repurchase their shares: Open market repurchases: Companies carry out buyback programs in open market over an extended period of time and may even have an outlined share repurchase program that buys back shares at certain times or at regular intervals.

Tender issuing offers: Shareholders are presented with tender offers. The shareholders get the chance to submit all the shares, or some portion of their equity that they are holding, within a specific timeframe and at a premium over the current market price.

Privately negotiated repurchases: Another method for the companies to buy back shares is by using privately negotiated repurchases. A privately negotiated repurchase provides a means for the company to repurchase a sizeable amount t of shares
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Disadvantages of accelerated buy backs: ● Any share repurchase program serves as an easy cover up for the poor financial status of the company. The investors get a false impression about the financial situation of the company as the statistics improve drastically.
● Often, it has been observed that the company insiders take advantage of the stock exchange programs while not diluting the actual EPS number, which is reported in the books of the company.
● During the accelerated programs, the share repurchases are often not able to be completed. It becomes difficult to know the real impact of the repurchase on the market price.
● When the companies buy its own stock, it also creates a negative reputation of the company in the market.
● The buying of its own stock from the market also leads to poor utilization of the company’s capital because the company could as well employ the same dollars to fuel its business
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