What are share buybacks?

What are share buybacks? Share Repurchase

Stock repurchase, also known as Share Repurchase or Buyback in English, refers to a listed company purchasing its own company's shares directly from the securities market or through an investment bank, thereby reducing the number of shares circulating in the market, thereby increasing the value of each share, thereby indirectly increasing the stock price.

Listed companies usually conduct stock repurchases for different purposes, such as increasing stock prices through stock repurchases to reward existing shareholders, or stabilizing the downward trend of stocks through stock repurchases.

All stock repurchases by the company will be disclosed in the 10-Q financial report of each financial quarter, and the stock repurchases in the fourth quarter will be disclosed in the company's 10-K financial report.

Stock repurchases can usually help a company increase its stock price and increase earnings per share, price-to-earnings ratio and other financial indicators by reducing the number of outstanding shares to optimize the company's valuation. But on the other hand, repurchasing stocks may cause investors to have a relatively negative investment mentality.

For example, the company cannot use surplus cash to make reasonable investments. Step 5: The information form page contains all the financial reports that the company needs to submit.

When a specific financial report is required, you can enter 10-K in the quick search bar above to quickly filter the 10-K form, and enter the year to view the financial reports submitted by the company in the specified year: Step 6: Click the "10-K" link of the desired year to enter the link page of various documents.

Click the "FORM 10-K" at the top to view the 10-K form for that year: Inquiring about Apple's stock buyback?

This chapter will conduct an example query by using Apple's 10-K financial report released in September 2021: After entering the 10-K financial report, scroll down to the Item 5 section to see Apple's stock repurchase status in the fourth quarter of its financial year: From the data table, we can see that the timing of Apple’s stock repurchases in the fourth quarter of fiscal year 2021 is: June 27th to July 31st, August 1st to August 28th, August 29th to September 25th.

Among them, Repurchased 59,216K shares from the open market for the first time at $143.54 per share; For the second time, it repurchased 42,343K shares from the open market at a price of $147.61 per share, and repurchased 4,921K shares in the form of "Accelerated Share Repurchase" (ASR) at an average price of $137.20 per share; For the third time, 35,041K shares were repurchased on the open market at a price of $149.81 per share.

A company's stock repurchases use cash to repurchase its shares from the open market. These shares will be canceled after repurchase, or deposited into the company's asset library, and will no longer have the right to receive dividends and vote on company affairs. This operation is done by the company through its securities broker.

Accelerated stock repurchase (ASR) is an investment strategy in which listed companies repurchase a large amount of stock at one time. The basic repurchase process is for a listed company to sign a forward contract with an intermediary investment bank to repurchase a certain amount of company shares from the bank at a specified price on a specified date.

The number of shares is usually large. The intermediary investment bank then borrows a large amount of the company's stock from, for example, a mutual fund, insurance company, or pension institution, and remits the shares to the contracted company on a specified date.

Because a company usually conducts ASR when it believes its stock price is undervalued, it will sign a forward contract with an intermediary bank for a stock price that is higher than the current price.

When delivered, the intermediary bank can earn considerable profits from the price difference, but it also faces the risk that the stock price does not rise on the fulfillment date. The total number of stock repurchases is: 141,521K shares, with a total amount of approximately $60,851M Why do companies engage in stock buybacks?

The main purposes of the company's stock repurchase are as follows: 1. Low cost increases shareholder benefits When a company has surplus cash that it wants to distribute to shareholders, it can do so by increasing dividends or buying back shares.

But increasing dividends will lead to a corresponding increase in taxes, while buying back shares will not, so some companies will use stock buybacks instead of increasing dividends to distribute surplus cash to shareholders.

2. Control or reduce investment capital The initial purpose of a company issuing shares is to raise equity capital to help its business expand. However, if the company has expanded to a certain scale and has very limited room for growth, the dividends paid by the company to all shareholders, as investment capital, will become a financial burden.

At this time, stock buybacks will be used to control the number of outstanding shares, thereby reducing dividend payments. For example, Apple, Disney, etc. have all developed to a certain scale and their upside space is constantly shrinking. Therefore, in recent years, they have begun to repurchase a large number of stocks to control investment capital. 3.

Stabilize stock price In contrast to the former, share repurchases in order to stabilize stock prices usually occur in companies that are experiencing a decline in development. When a company experiences a recession or encounters an economic crisis, it may cut dividends to control capital expenditures.

However, cutting dividends may arouse negative sentiment among shareholders, followed by massive selling and a sharp decline in stock prices.

Therefore, the company will use the method of repurchasing a certain number of shares to reduce investment capital expenditures, and at the same time, it can also stabilize the mood of shareholders and keep the stock price relatively stable. 4.

Adjust stock price When a company believes that the current stock price is seriously undervalued, they will repurchase some shares at a low price, wait until the market adjusts and the stock price rises to a level that the company believes is equal to its value, and then reissue it to capitalize it.

This situation usually occurs when some companies' stock prices are seriously undervalued due to factors such as short-term investment losses, negative news impact, or general bearish sentiment in the market, and they will use stock buybacks to adjust their stock prices. 5.

Offset shareholder earnings dilution Some companies will issue stock options to employees to provide benefits and retain talent. As the issuance increases, this will increase the number of outstanding shares, thereby diluting shareholder returns, so the company will offset this dilution by buying back shares.

What impact does buying back stock have on the company? Buying back shares can sometimes bring more benefits to the company, but sometimes it can also cause certain disadvantages, which can have a positive or negative impact on the company's development. 1.

Positive impact Increase the stock price: When the stock is repurchased, the number of shares circulating in the market is reduced accordingly.

If the total income remains unchanged, then its earnings per share (EPS) will increase, and the stock will become more valuable in the eyes of the outside world, thereby attracting more investors, and the stock price will increase accordingly. Tax Benefit: Dividend earnings are taxed, while share price appreciation is not.

When a company repurchases shares, the value of the remaining shares held by shareholders increases, and this increased gain is not taxed. More flexible ways to give back to shareholders: When a company wants to increase shareholder returns, it can increase dividends or repurchase shares.

However, increasing dividends means paying higher dividends in the future, because lowering dividends will cause negative emotions among shareholders, which may eventually lead to a decline in stock prices.

Therefore, some companies will use a combination of dividends and stock repurchases to increase shareholder returns, so that companies can more flexibly adjust the shareholder returns they can pay.

Improve the overall economic environment: When stock repurchases cause stock prices to rise, consumers' investment confidence and consumption desire will increase to a certain extent, which will subsequently lead to a moderate improvement in the overall economic environment. 2.

Negative impact Stock repurchases may sometimes cause stock prices to fall because shareholders will believe that the company has no other profit opportunities, which means that the company's profitability has reached an upper limit. Then they may lose investment confidence in the company and sell their stocks, causing the stock price to fall.

On the other hand, if a company takes out a loan to repurchase shares, this will affect the company's credit rating. Because companies are exempt from tax on loan interest and consume their cash reserves at the same time, some companies will take such measures to avoid taxes when the economic environment is not conducive to their development.

Therefore, credit reporting agencies usually view such stock buybacks through loans in a negative light, thereby lowering the company's credit rating.

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