Tuesday, May 29, 2012

>Companies doing Buy-Back – Offers value to investors

Corporate that generates profit usually deploy it in two forms one in the form of dividends to reward the shareholders, the remainder portion is redeployed in the business for future growth. Theory suggests that if the management is able to generate higher returns by deploying the profits so generated in business, then they should conserve cash for investing. However if the business is not able to generate better returns, the profit generated should be paid out to the investors as dividend.

Another form of rewarding the shareholder is through share BuyBack as an alternative to the dividend payout which is more efficient and better alternaive to dividends.The advantage is that buy-backs give a boost to share price and give shareholders capital gains rather than income. The management of the company may also resort to share Buyback when they feel that the stock is under valued and the surplus cash can be utilised to enhance the shareholder value for the existing shareholders, as sharebuy back is also one way of improving earnings per share. It is an indirect way of increasing the promoter holding in the company and reducing the floating stock.

To read report in detail: BUY BACK OFFERS