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"The buying back of shares is a dangerous financial strategy as it increases the company's capital gearing". Evaluate this - Essay Example
Finance & Accounting
Pages 10 (2510 words)
Contents Introduction 2 Motives for stock buyback 2 Market perception 2 Financial Ratios 3 Ownership 4 Tax Benefit 4 Capital Gearing 5 Share/Stock Buyback 6 Conclusion 8 References 10 Stock Buyback Introduction Stock buyback or stock repurchase is a process under which the companies purchase their shares from shareholders…
There are different motives that would attract the companies to buy back the shares and there are different techniques that can be used to go through the process of stock repurchase. Different techniques that can are used by the companies for their stock buy-back are as follow: Company offers to purchase the shares from their shareholders at a premium price thus it gives value to them and extra return over price they actually had paid for the shares when they were bought. Companies often buy back their shares from the open market like an ordinary investor purchasing shares and making investment. It is often seen that the market and shareholders perceive the decision of the company to buy back the shares as a positive move and shareholders expecting higher returns stimulates stock price of the company (Larry, 1981). Motives for stock buyback Different circumstances and requirements of business conditions can influence management of share repurchase. Such motivating factors along with their reasons are discussed below: Market perception It is the perception of the shareholders and potential investors that exists in the market matters for future of company. ...
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