Why don't copmanies buy stock back after they are successful? (read details)?

Question

As an example when companies start they usually need money from INVESTORS like Wal-Mart, in turn the investors hope to get capitol gains. Why then after companies have grown like Wal-Mart don't they buy their stock back? I meanI know some companies HAVE and do but why don't all of them?

Answer 1

Ideally, they do not because they have other, better, uses for their funds (i.e., to earn even more money) and, while they may pay dividends which are a "cost" for using the money, the invested funds are generally less expensive than borrowing.

Answer 2

One reason is that their stock prices is so low that they have to buy back the stock to artificially raise the price up. I know that's not what asking about.

Another reason is that the company can usually do something else with the cash instead of buying their stock back. Buying back the stock is a one time gain for the investor (arguable here) but investing that money on projects that yield more returns is or should be the company's main objective which will enhance longterm stockholders' equity in the form of growth.

There's only a handlful of big companies/corporations in the world where there more room for growth is limited so they buy back their stock.

Answer 3

The cost of capital determines how a company raises additonal capital. If borrowing money is very cheap, they will float bonds to finance expansion. If interest rates are very high, a secondary stock offering would be better. Rebuying shares only makes sense if the company has excess cash that it can not get a higher Return on Equity on than the earnings per share bump it will get by using that cash to reduce outstanding shares.

As an existing stockholder (owner of the company) you want them to use their cash as effectively as possible, and if that means expansion or aquisiton as opposed to stock buy backs, then so be it. Whatever increases your shareholder value most in the long run is in your best interest.

Answer 4

in order for some types of businesses to grow, they need to plow all profits back into company-retail has very low profit margins - they may seem big, but you would have to look at their cash position compared to the number of shares outstanding. They need their cash for day-to-day operations. Now companies like utilities have good profit margins and can afford to pay dividends. Some companies - if they have a lot of cash and want to increase their stock price, they will buy back shares, so earnings per share will increase

Answer 5

It's a complicated question. I don't think you'll get a satisfactory answer here. Buying back stock is just one element of a companies financial strategy. The best strategy depends on the goals of the company and it could involve many different things: buying back stock, capital improvements, debt....as I said, it's complicated.

Answer 6

Because these business think they have better uses for that money. Instead of using that money to pay for the buyback they could use it to purchase an under performing competitor or to invest in their existing business.

It's the equivalent of saying, "hey, we don't have any good ideas on how to make money. Our investors are smarter than us and know what to do with this money than we do so let's give it back to them."

Answer 7

Because some companies believe (rightly or wrongly) that there are still growth opportunities out there they are well-positioned to take advantage of. So they reinvest their earnings instead of spending the money on stock repurchases.