Share buyback: what it is and why companies use it
Share buyback: what it is and why companies use it
Share buyback is a mechanism whereby a company buys back its own shares from the market. The goal is simple: to reduce the number of securities in circulation and thereby increase the value of the remaining shares.
Buyback is one of the key instruments of corporate finance, actively used by both large US corporations (Apple, Microsoft, Meta) and Russian companies (Sberbank, Lukoil).
Buyback is one of the key instruments of corporate finance, actively used by both large US corporations (Apple, Microsoft, Meta) and Russian companies (Sberbank, Lukoil).
How does buyback work?
When a company announces a buyback program, it uses some of its available liquidity to purchase its own shares from investors. These shares are either written off, reducing the free float, or held on the balance sheet as treasury stock.Main objectives:
An increase in the price of shares due to a decrease in their number in circulation.
Increase in EPS (earnings per share) figures.
Signal to the market : management believes in the sustainability of the business.
Flexibility in capital management compared to dividends.
Share buyback: what it is and why companies use it
Benefits for investors
Share price increase - all other things being equal, a buyback increases the price.Improved company metrics - EPS and ROE look more attractive.
Tax efficiency - in some jurisdictions it is more profitable than paying dividends.
Risks and criticism buyback
Focus on the short-term effect: sometimes buyback is used to boost quotes before reporting.Reduced investment in development: A buyout may mean that the company does not see more efficient ways to invest capital.
Regulatory risks: In the US, the SEC and Congress are discussing restrictions on repurchase programs.
Strategy for traders and investors
For the investor : buyback should be considered a positive signal, but it is important to analyze at whose expense it is carried out (own cash or debt).Trader : The buyback program often creates volatility and short-term trading impulses.
Long-term strategy : buyback is more effective if it is carried out at “fair” price levels, rather than at historical highs.
Conclusion
Share buyback is a tool that, when used correctly, brings benefits to both companies and investors. But it requires analysis: the source of funding, market conditions, and transparency of goals determine whether the buyback will become a growth driver or temporary support for quotes.By Miles Harrington
September 16, 2025
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