Share Buyback

Definition

A company's purchase of its own shares. It can reduce shares outstanding, but its effect on shareholder value depends on factors such as the price paid and how it is financed.

Companies often repurchase shares in the open market. A buyback can reduce the share count and raise earnings per share if profits stay the same. Its effect on shareholders also depends on the price paid and how the company funds the purchase.

Example

Company A spends $20 million buying 1 million of its own shares at $20 each. If it retires those shares, its outstanding share count falls by 1 million.