Why would company buyback its own share

Buyback of Shares happens when a company purchases and retires some of its existing shares. Buy Shares can not be reissued in the market. This can be a great thing for shareholders because after the share buyback, they will own a bigger portion of the company, and therefore a bigger portion of its cash flow and earnings.

What happens to share price after buyback?

A buyback  is mean to reduces the number of shares in a company held by the public. In the short term, the stock price may rise by reason of shareholders who know that a buyback will immediately boost earnings per share. Over the long term, a buyback may or may not be beneficial to shareholders.

How will a share repurchase affect the value of the company?

On the balance sheet, a share repurchase will reduce the company's cash holdings, and consequently its total assets base, by the amount of the cash expended in the buyback. The buyback will simultaneously also shrink shareholders' equity on the liabilities side by the same amount. Therefore underlying value of share does not get affected.

Is buyback of shares good?

The theory behind share buybacks is that they reduce the number of shares available in the market and – all things being equal – thus increase EPS on the remaining shares, benefiting shareholders. ... The shareholder believes that stock is undervalued and a good buy at the current market price.

How will shareholders benefit from buyback of shares?

Stock repurchasing can allows companies to reinvest in themselves by reducing the number of existing shares in the market. ... From a financial perspective, buybacks benefit investors by improving shareholder value, increasing share prices, and creating tax beneficial opportunities.

What is objective behind buyback of shares?

1. Through buyback, company increase promoters holdings, as a percentage of total outstanding shares, without additional investment.
2. Company wants to change the capital structure.
3. Management thinks that Company’s stock are available at bargain rate.
4. Company have huge cash reserve and wants to return the excess cash to the share holders, in the absence of appropriate investment opportunities.

What are method of buyback of shares? 

Companies generally buy back share by the tender method or open market purchase method. Under tender method, the companies offer to buy back shares at a specific price during a species period. Under the open market purchase method, a company buys shares from the secondary market over a period of one year subject to maximum price fixed by the management.

Be the early bird to embrace opportunities available in buyback offer

Conclusion

Share repurchases are a great way for a company to create value for its shareholders, especially if the company has excess cash and little growth prospects, but only if they purchase their shares at a price below intrinsic value.