a stock buyback or repurchase occurs when a company buys its own shares off the market and therefore reduces the amount of stock outstanding. it can do this in one of two ways. the company can either buy shares at current market prices or tender a fixed price offer to current shareholders. the primary benefit of a buyback is the price appreciation investors usually see after the transaction. when the supply of stock available to the general market suddenly becomes smaller, each share is worth more. caleb's computer supplies which has 1,000,000 shares outstanding is projected to generate $2,000,000 in net income this year. that amounts to earnings of $2 per share, calculated as $2,000,000 by 1,000,000 shares. but if the organization buys back 500,000 of those shares, it now has earnings of $4 per share or $2,000,000 by 500,000 shares. as a result, each share's price roughly doubles. instead of buying back stock, the company could reward investors with the dividend payment. however, when the management team believes the current stock price is attractive, buybacks may offer a bigger benefit. so, what happens to repurchased shares. they're recorded as treasury stock in the company's financial statements. the company can either hold on to the shares, perhaps using them to buy another company or compensate executives or it can simply retire them.
- stock buyback・・・自社株買い
- treasury stock・・・自己株式