Buyback
Also called: share buyback, share repurchase
A company buying back some of its own shares from shareholders, which reduces the number of shares in issue.
Buybacks can be done through a tender offer at a fixed price or by buying on the exchange over time. The bought shares are cancelled, so each remaining share represents a slightly larger part of the company.
A buyback helps remaining shareholders only if the price paid is below what the shares are worth. Its tax treatment has changed in recent years.
Example
A company with 10 crore shares that buys back 50 lakh shares has 9.5 crore left, so each remaining share is about 5.3% larger a slice.
Learn more in these lessons
- Dividends, splits, bonus shares and other corporate actionsWhat happens to my shares in a split, bonus issue or rights issue?
- Earnings per shareHow is earnings per share calculated?
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- Capital allocationHow do you judge what management does with a company's cash?
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