The Benefits and Drawbacks of Share Buy-Backs

Accounts for Share Buy-Backs

Table of Contents
INTRODUCTION...........................................................................................................................1
Topic : “Accounts for Share buy-backs”....................................................................................1
CONCLUSION ...............................................................................................................................3
REFERENCES................................................................................................................................4

INTRODUCTION
Buyback of share is known as the process of share repurchase. A company buy its own
outstanding share from the market to reduce the number of share available on the open market.
Buybacks are considered as more tax-effective means for rewarding shareholder (Mitchell, Izan,
and Lim, 2015). In this essay, importance of buybacks, reason, procedure, advantages and forms
and guidelines have been discussed.
Topic : “Accounts for Share buy-backs”
A buy back of share is known as the repurchase by a corporation/company of its own
share on the open market. It is a situation when a company buys its own outstanding share to
reduce the number of share available in the open market (what is Share Buy-Back, 2018). This is
generally done by company when they done by feel that its shares are undervalued. The company
announces a share buyback value with a specified amount and at a price per share including the
number of share it wishes to purchase back from shareholder. For example, XYZ company
announced a $11000 million buyback offer at $320 per share to purchase 34.37 million share
held by the shareholder.
Companies have been permitted since 1995 by the companies act according to
(Australian Securities & Investments Commission) to purchase/buy-back their own shares. In
recent times, As a way to return cash to shareholder, share buyback have became more important
than dividends (Haslam and et. Al, 2015). The buy back should not exceed 25% of the total
paid-up share capital and free reserves of the company. It is also important to see that, buy back
of equity share in any financial year should not exceed 25% of the total paid-up equity share
capital. The debt equity ratio should not exceed 2:1 as well.
There are number of reasons because of which a company may buy bucks its own shares
from open market. They are Like, to increase the value of remaining share by reducing the
supply; to prevent other shareholder from taking a controlling percentage. Through share buy
back company can signals that it preserve the stock price. The facts that achieving the same
preservation of capital as a dividend cut, the stock price would likely take less of a hit. It will
certainly drive a company's stock higher. It helps in increasing earning per share of the
company. When companies follow share buy back, it will reduce assets on their balance sheet
and increase return on assets. So, by reducing the number of outstanding share and maintain the