why do companies buy back their shares?e?

Answer 1

P K, the question is why do COMPANIES buy back their own shares, not why do you buy their shares.
Two of the financial tools used by investors are the sales per share number and the earnings per share number. More earnings (profits/sales etc.) per share is better than less, as investors will pay more for the stock if it has more earnings. One way to keep the numbers high is to increase sales and earnings. If the company has a hard time doing that, the other way is to decrease the number of shares outstanding (for sale in the market) by buying them back. Another reason is a company may need more shares in their treasury supply for their dividend reinvestment programs and employees stock options programs.

Answer 2

I like the answers of gosh and philos.
Additionally, specifically to WHY they buy them back: a few possible reasons:
1)the company has spare capital in cash that does not see how to easily re-invest; that would be when their market is fully developerd and really do not see a lot of good sense in expanding production or other operational facilites
2) at the moment the company thinks their shares are really undervlaued, or should I say unrderprices, on the market; may be the open market investors are not as optimistica about the company as the decision makers int he comapany itself are;
In any case a buy back is a financlial equivalent of a divident; approximately if the company buys back 2% of its shares from the market; that is equivalent to the cpmpany paying 2% divident; why?: as the other people have answered that reduces the number of shares on the market making you a greater percentage owner of the company that way giving you a greater real ownership for what ever number of shares you already own; in addtion to it being a divident equivalent it is also like an automatic reinvestment - no transaction costs no need to make an additional decision on it.
In general buy back - a very good thing and issuance of new shares (the oposit) - a bad thing. Note that either of these is not an automatic sugesstion the stock is a good investment a bad for you. You can use it as one of the many factors you will have to consider.
I know a lot of comaonies that I consider good investments and currently issue more shares (this will be like a negative divident) but the company may be on an important growth path and additional fudning and financing mght be the best thing for them to do.
A buy back can also be done in a comopany that is not necessarily a very good investment. What if they do the buy back beacuase they have totaly run out of ideas how to re-unvest and expand while everybody in their industry is expanding.
So, again, I would not treat it as a single defining factor to consider a company.
But one thing is true. If you owned them when they were doing the buyback you had an immediate advantage, like a divident. If they issue more shares while you owned them - they just decided to devalue your investment for the trade off of the re-investment and growth expectaions.

Answer 3

A corporation will typically buy back their own shares when two conditions exist:

1. The corporation has excess cash which has no necessary purpose; and
2. The corporation feels that their stock is undervalued.

Companies tend to be long term holders of their own stock hence they remove a certain amount of trading of their stock from the market. This decreases the supply of tradeable stock on the exchange and if the demand increases or even remains constant, the share price will rise.

When a company announces that they will buy back X number of shares, it is not obligated to do so. Many do not buy all the shares that they announced.

Also, the company can continue to hold the shares or retire them. The shares can also be used to help block a hostile takeover.

Answer 4

Let me add a few less PC explanations:

1) The company has an obscenely rich incentive stock program for upper management. After robbing shareholdes of value by granting buckets of options at contrived strike prices, they reload the options bucket by buying shares for treasury. Shareholders are placated, because the dilution is temporarily reversed.

2) Company management is unimaginative. The company throws off more cash than they can figure out how to spend. Since cash on hand builds value at single digit rates (presumably invested in T-bills), they buy their own stock. This makes them seem like geniuses: growth will appear rapid, because there is less stock and because the core business is hopefully earning more than t-bill rates.

3) A buyback puts stock in treasury, where management can use it as a defense against a hostile bidder or activist shareholders.

My feeling is that a buyback is always a sign of weakness or poor management. It is NOT the equivalent of a dividend, which is the correct way of returning excess value to shareholders. Buybacks simply hide excess cash in treasury stock, where it's less visible to shareholders.

Answer 5

Probably because the Yankees are able to go out and spend a lot of money, unlike other teams. I know the Yankees don't buy their championships. They have been able to bring up some great talent from their own system. As for the company-stadium name thing. Not all cities and teams are able to generate the kind of money that the Yankees can in New York City. I don't think it's a bad thing to have a company-named stadium. The team gets their stadium and the companies get their names out there to possible costumers. Everybody's happy. BQ: Target Field

Answer 6

for us this is a good news...it means stock is at its bottom or near

when a company does this, they think the stock is undervalued

Answer 7

Simple...you give them money to help build the business and if the business goes well, you get a piece of the profits. Likewise, if the business goes down, you lose your money.

Answer 8

Because they want to make money too.