Share Buyback
When a company uses its cash to purchase its own shares on the open market, reducing shares outstanding and boosting EPS.
A share buyback (or stock repurchase) is when a company allocates capital to buy back its own shares. The purchased shares can be retired (reducing shares outstanding permanently) or held as treasury stock.
Buybacks are the primary alternative to dividends for returning cash to shareholders. By reducing the share count, they mechanically increase EPS and book value per share without any change in underlying earnings — which can inflate per-share metrics.
Critics note that buybacks done at inflated prices destroy shareholder value. Defenders argue they are flexible (unlike dividends, a company can stop buybacks without a negative signal). In the US, buybacks surpass dividends as the primary form of capital return in most years.
Example
A company earns $500M with 100M shares outstanding: EPS = $5.00. It spends $200M buying back 10M shares, leaving 90M outstanding. Next year, same $500M earnings but EPS = $500M ÷ 90M = $5.56 — a 11% EPS boost with zero operational improvement.
Related Terms
Book Value
Total assets minus total liabilities on the balance sheet — what shareholders would theoretically receive if the company were liquidated today.
IntermediateDividend
A cash (or stock) payment a company makes to shareholders from its profits, typically on a quarterly schedule.
BeginnerEPS (Earnings Per Share)
Net income divided by shares outstanding. EPS is the single most-watched earnings metric for valuing a stock.
BeginnerFree Cash Flow
Operating cash flow minus capital expenditures. The actual cash a business generates after maintaining and growing its assets.
IntermediateSecondary Offering
A new share issuance by an already-public company, or a large block sale by existing shareholders. Dilutive if the company issues new shares.
IntermediateShare
One indivisible unit of ownership in a company. Your ownership percentage equals your shares divided by total shares outstanding.
BeginnerShares Outstanding
The total number of a company's shares currently held by all shareholders, including insiders and institutions.
Beginner