During an IPO, a Company sells its shares in the stock market. BUYBACK in that sense is opposite of an IPO.  It is when a company offers to repurchase its shares from existing shareholders.

The reasons for Buyback are many.

A common reason is a large cash surplus in the balance sheet.

Buyback is one way to make use of this surplus. And by reducing the number of shares in the open market, the value of each share rises also improving the Earnings Per Share Ratio of the company

The company may be reducing some of its dividend liability by buying back shares and thus, reducing cost.  If the price is at a premium to the market price, a buyback can be an attractive and safe opportunity.

It makes more sense if you feel the share price in the market is overvalued, or you don’t believe there are opportunities to grow earnings at the same pace going forward. 

To safeguard from arbitrage, most companies announce Buyback with a “record date”.  Only shares that are bought on or before record date are eligible for buy back

But study carefully about the company’s fundamentals,  recent news or speak to our relationship managers to guide you.

Know More to Grow More

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