What does Share Buyback Signify?
A buyback signifies the current financial situation and the company’s confidence in future earnings and cash flow. It signifies the capital allocation strategies of the company and also reflects the boost in the earnings per share. A debt-funded buyback adds on financial leverage, but it is sad to note that a boost in earnings per share and improvement in other financial ratios is short-term and the opportunity cost of a buyback can be long-term financial gains. Hence, it is important to understand the actual cause and impact of buyback before making decisions.
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