11 Minutes! Share Repurchase and Stock Repurchase for Dividends and Share Repurchases

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To those who are acquainted with stock dividends as well as stock splits, a share repurchase agreement is similar to the opposite. In this case, the company doesn't give out extra absolutely free shares of stock to stockholders (which will turn out to be "outstanding" on the market). mbabullshit.com...
Instead, the organization buys back stock certificates from a number of stockholders (not all), so the organization as an alternative ends up with less of these on the market becoming owned by the leftover stockholders. (These tend to be then transferred in the company's treasury, and aren't considered a part of the "outstanding" certificates).
You may feel that this implies that each of the certificates really should now each have higher value because there may now end up being less outstanding certificates representing the full valuation on the business.
Actually, theoretically, the answer is "no". Exactly why? Mainly because we believe that whenever the business purchases back these kinds of certificates, it pays out its very own funds. Therefore now, the overall business is worth less simply because it has less cash. Therefore yes, each outstanding certificate may right now own a bigger proportion of the company, however the company itself is now well worth less than before. Nonetheless, this presumes that the business buys back its own certificates depending on the fair value of the company. (In real life, the organization will probably purchase these back at an amount closer to the market price, which seldom reflects the "fair" value.)
How about improved earnings for each share? Shouldn't this increase the value and price?
Again, the answer is "no" for 2 reasons:
1) The corporation is today inside a riskier position simply because it has less cash. This increased risk can make the company much less valuable. Therefore, the elevated risk should counterbalance the advantage of elevated earnings... which should in theory always keep the certificate's selling price exactly the same.
2) This increased earnings for each share will simply benefit the stockholders if perhaps it is paid to the stockholders as cash dividends. Nevertheless, as suggested in yet another article from this exact same author, having to pay cash dividends will decrease the worth of the certificate by the same amount as the dividend payout; therefore it could have simply no advantage in the long run. Therefore because there is simply no added benefit from the improved earnings for each share along with increased dividends, this ought to have absolutely no impact on the cost of the certificate. Furthermore, the net present worth of your extra future dividends may just be offset from the cash the business loses (which you are generally eligible for mainly because of your own part-ownership of the business) in order to purchase back its very own certificates.
As can plainly be observed, a share repurchase or perhaps stock buy back will not always benefit stockholders.
Again, this is just about all simply in theory and presumes the shares of stock are generally purchased back at their "fair value". In the real world, the stock's market price doesn't always continue with the fair value or even "appropriate" price, so the business won't be able to purchase these back at the fair value. • 11 Minutes! Share Repu...

[@ninamj9500]

You make something like Finance so simple and easy to understand. Glad I came across your channel!

[@MBAbullshit]

+Nina Mj glad to have you here!

[@magdalenabator4291]

Thanks for the great video. I'd like to watch the other one, how stock repurchase do not help shareholders. Sadly, I cannot find it anywhere. Could you provide a link, please.

[@MBAbullshit]

Thanks Top1oli! Take care!

[@MBAbullshit]

welcome very much!

[@MBAbullshit]

Bookmark it all you want!

[@DanhNguyen-vu9sd]

you make finance so simple :D thanks.

[@SreedharRPingili]

Good Explanation of dividend and stock repurchase

[@MBAbullshit]

glad you liked the explanation

[@MBAbullshit]

Good to know you'll be watchin my vids again then!

[@MBAbullshit]

@magdalena Hi there, you can watch it on my website

[@ngopalakrishna]

Bookmarked and thanks for this :)

[@pcrlarkin]

Quick question, but the EPS figure confuses me. I understand how it's calculated and but he didnt earn the money, it isnt in his pocket is it? It's the profit allocated to each share but I struggle to see how this can be given that the earnings arent paid out as dividends or anything.

[@williamlionard1162]

Thank you sir,this vidio very very help me

[@MBAbullshit]

Glad to hear that

[@hunk15liy]

just bookmarked it!!...:-)

[@madasassin5465]

thank you very much! very helpful! the way you explain are very clear! I wish If you give help to email us or send us answers with Accounting questions!

[@madasassin5465]

thank you very much! very helpful! the way you explain are very clear! I wish If you give help to email us or send us answers with Accounting questions!