How To Guide For: Understanding What A Stock Buyback Is & The Pros And Cons

A stock buyback is the re-acquisition by a company of its own stock. A stock buyback represents a more flexible way of returning money to shareholders. A corporation can repurchase its own stock by distributing cash to existing

shareholders in exchange for a fraction of the company's outstanding equity.

The company either retires the repurchased shares or keeps them as treasury stock, available for re-issuance. Most of the buyback programs worldwide are through an open-market method. Stock buyback affects supply and demand so with less available stock in the market, demand necessarily sends the stock price upward. So why do companies buyback their own stocks. Well companies buy their stock because they believe that the stock will appreciate in time. A downside to stock buyback is when the company uses funds from operations for the stock buyback, less money is available for other ventures. Another downside to stock buyback is when a company uses debt to finance a stock buyback. When a company uses debt this will give them less borrowing power for other uses and also the company will have to pay back the borrowed funds with interest, lowering earnings figures. The reason I wanted to discuss stock buyback is because of the Facebook stock buyback announcement on November 18. There could be other company stock buybacks in the future. To learn more about stock buybacks, how it works, the purpose and the pros and cons click on the pictures below to read the articles.