Buy back option

Why do companies buy back their own shares?

3 Answer(s)


Hi Tina
Reasons for buy back are:
1.If according to a company its shares are undervalued in the market, then it would repurchase a part of its own shares at a higher price from the market, so that after buyback the price would go up.
2.In case a company has got accumulated cash reserves it would use them to repurchase a part of its own shares at a higher price from the market.This has a dual impact: One is the company has reinvested its reserves in itself and the other is the outstanding shares in the maket comes down thereby the company's EPS also increases.


Hi Tina..Company normally goes for buy back option as they wanted to reduce the number of shares in the market.By doing this company can increase the rate as it is less available & also proportion of shares company owns will increase


Company buying back the shares ,showing the promoters confidence in the company . They feel that they should hold more shares and they have complete faith in the future of the company.

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