# Share buy backs?



## stockGURU (25 January 2005)

Why do companies buy back their own shares and what implications does this usually have for the share price?

Is it wise to buy shares in a company that is conducting a share buy back?

What are common motivations for share buy backs?


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## GreatPig (26 January 2005)

I think companies buy back their own shares to reduce the total number of shares on the market and thus move their share price up into a different range (eg. a company trading at 10 cents might prefer to have their share price around a dollar) and to try and reduce the total number of people holding shares at any time (cheaper and easier to manage).

Similarly, they do splits to move the share price down into a more affordable range (eg. $50 down to $10) and to provide more available shares on the market to help with liquidity.

There may well be other reasons too, but this is what I think.

GP


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## money tree (26 January 2005)

Companies will do a buyback for many reasons:

- invest in what they consider a cheap asset (gets the punters to re-evaluate the stock)
- get rid of excess cash
- improve debt/equity ratio
- puts excess franking credits to use
- improve p/e ratio since earnings are the same but profits split over less shares
- provide a reward for loyal Australian holders by understating the capital component and overstating the dividend component, thereby giving a free bonus through franking credits
- whenever company options are exercised, the number of shares on issue increases. A buyback brings this number back down
- having a higher p/e ratio means the stock chart heads up, which is good since all the directors hold options and are probably on performance based salaries
- small investors get bought out brokerage free, meaning liquidity increases, allowing for a takeover


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## amohonour (31 October 2005)

so would it be fair to say that all in all a buy back is or should be positive signs for a coy?

what does it mean when it says that the maximum buy back price is at a certain price? does this mean that they cant buy them above that price?


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