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Buyback is termed as a share purchase. Sometimes firm purchases its own outstanding shares to bring down the number of shares that are available in the open market. Firms buy back shares for many reasons. One of the main reason is to raise the remaining shares which are available by bringing down the supply. It is also to block the other shareholders from taking over the control.
By using the Option of buyback of shares-Firm can invest in their own selves.
The benefit of Buy-Back of shares
One bigger benefit on buyback of share that it indicates to investors that the firm has enough cash is kept emergencies, and there are fewer chances of cash scarcity.
The share repurchase brings down the number of existing shares which makes each share worth a greater percentage of the corporation. The stock’s Earning Per Share (EPS) thus raises while the Price-to-Earnings ratio (P/E) goes down or the stock price elevates.
Prohibitions on Buy-Back
No company shall directly or indirectly purchase its own shares:-
Approval of Buy-back of Shares
The Buy-back can be made with the approval of the Board of directors at a board meeting and/or by a special resolution (SR) passed by shareholders in general meeting, depending on the quantum of buyback:
Methods on buyback of shares
The Buy-back of shares :
Demystifying the Term “Buyback”
If there is a Compensation related issue, then firms could opt for a buyback. By Buyback of shares, Often, firms avoid the dilution of existing shareholders. The management awards employees with stock options and stock rewards.
Buybacks are done by utilizing a company’s retained earnings, the net economic impact to investors will be the same as of preserved earnings were given out as shareholder dividends.