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International Operations Manager - Buy Back Shares

Autor:   •  April 6, 2011  •  Essay  •  509 Words (3 Pages)  •  1,713 Views

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1. Executive Summary

Some companies decide to buy back their own shares to invest their excess of cash, to avoid tied dividend policies, to give a message to the market of the sharing price, we buy our shares because the market value of the company is below its real value. When buying shares back the company increases its gearing ratio, as

Gearing ratio = Long term borrowing / (Long term borrowing + Equity)

If we reduce the equity the Gearing ratio will increase, it is important that the company buying back shares does not increases its gearing ratio to risky lebels, which will be determined by the gearing ratios of other companies in the same industry, if a company has a very reliable income such as Sainsbury, the gearing ratio could be high and they will still be able to cover their long term liabilities.

2. Introduction

…… is been used in this report as a case study of the effects of companies buying back their own shares, a comparison before after the buybacks will be analysed: has the company achieved the results that their were willing to?, what has been the effect on the EPS How has the market reacted? What has happened with the share price?

Share buy-backs is a way to return money to the share holders. Some share holders decide to tell their shares, so the cash investment return to the investors and the remained shareholders will benefit by a higher value of their shares, as they are fewer share.

Price per share = Equity attributable to shareholders/ no of shares, as the dividend is lower the price per share is higher. Provided the market applies the same price/earnings ratio to the shares.

Repurchasing shares may be done as an alternative to dividends or when the dividend policity is , the company uses its surplus or profits to repurchase its own shares and all shareholders are benefiting from this action. In occasions the company may decide to borrow money to repurchase shares, that could be due to the excessive dividend policies, that is, the cost of paying dividends is higher than borrowing money to pay for the shares.

Many companies buyback shares as a simple way to distribute cash generated by rising corporate profitability.

But back backs absorb cash that could be spent on higher annual dividend payment or capital expenditure, if the company is overvalued that will be a waste of money, in this case, it will be good for the investors selling their shares and bad for those who have overvalued shares and do not sell.

5. List of references and bibliography


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