Stock repurchases

Flask, I think once a company repurchases then it is like that stock never existed. I don't believe they could sell it back later. (Obviously could issue more shares).

No, as long as the company doesn't formally retire the shares, they can resell them at any time.

If the shares are retired, they can be reissued as well (a company can issue as many shares as its articles of incorporation allow, at any time).

Yes, it's filed as a reduction in retained earnings and causes the equity share of the capital structure to decrease, but so does a dividend.

Repurchases are functionally (to the company) the same as dividends, but the distributions are concentrated in cash to some investors and the other investors receive the value in the form of capital gains.

It was really useful when CGs were taxed at a lower rates than dividends, but it's still got a lot of merit to it.

It's a great way to give EPS a boost. Some may call it financial engineering. As others of said it may help with the appreciation of stock price for shareholders and can be an way to return shareholder value.

That's not a valid concern bs paying a dividend, C. If that's a concern, then they can keep sitting on the cash, but buying back it's own stock does not make the company leveraged to itself like you are thinking.

However, if the company has any debt, shrinking the equity portion would effectively increase financial leverage.

As far as investing in other company's stock, that is the last thing I want the CEO of a company (sans Buffet) doing. If I wan to be invested in a company, I will do it myself without the penalty of double taxation.

The company I work for bought back approximately 5 million shares this years.

The capital ratio is an interesting piece of this scenario--nice point, Russian.

I think it also matters which accounting treatment a firm selects as it will help shed light on the intent behind the repurchase. If the retirement method is used (buy back directly and those shares disappear) then I think it shows the company has no plans of reissuing the shares. However, the cost method (which results in the "Treasury stock" account) shows that the possibility for a sell-back is a possibility as the shares are still in existence.

I do not know the practicality of what I just posted, but I think the logic is there from an accounting perspective.

Thoughts?

Its a shame mgmt teams seem to be notoriously bad at timing stock repurchases. IMO, theoretically a good idea, often botched in actual practice. Shoutout to lynx for the FAR knowledge drop.

In their defense, I think it really a cyclical issue. We all know they buy back shares (theoretically) when 1) they have excess cash and 2) few current profitable operating opportunities. Logically, the existence of that scenario suggests they are buying past a mid-cycle (being generous here) time frame, also suggesting that share prices are likely rich at that time to begin with, and investors are probably getting antsy and putting pressure on mgmt to "do something," when the best thing to do would be probably to do nothing and be patient.

At the same time, the most opportunistic time to do a buyback is when valuations are low, which generally obviously falls during a period of some kind of economic distress. So then mgmt would be draining liquidity and probably forgoing potentially underpriced operating opps in order to buy back shares, which sounds just as ludicrous as the opposite/above scenario.

I get why you think it is wrong, but what is your alternative solution?