Share buybacks, or stock buybacks, are one of five ways a company can spend its profits. Find out more.
paying off incurred debt;
buying or merging with other businesses that the company sees as beneficial to growing its core business; “It’s not a dirty thing. It’s not something we should say, ‘ew, that’s gross,'” Schwartz said of share buybacks. “It’s part of your five tools of capital allocation as a CEO or a CFO.”There are several reasons companies might choose to execute share buybacks and it’s “a function of a properly formed stock market,” Schwartz said. When a company buys back its shares, it reduces the number of outstanding shares in the stock market and theoretically its share price should rise.
“Now, share buybacks, like any other capital allocation decisions, can be problematic if you’re using them to artificially prop up the stock without regard for the value of your company,” Schwartz said.
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