Expanded Share Buyback

AAA

DEFINITION of 'Expanded Share Buyback'

An increase in a company’s existing share repurchase plan. An expanded share buyback is an acceleration of a company’s share repurchase plan, and leads to a faster contraction of its share float. The market impact of an expanded share buyback depends on its magnitude. The greater the amount by which the expanded buyback exceeds the existing repurchase plan, the more positive the market reaction to it. 

INVESTOPEDIA EXPLAINS 'Expanded Share Buyback'

Although share repurchase and expanded buyback announcements are generally received enthusiastically by investors, skeptics contend that companies would be better off deploying excess cash in more efficient ways, such as investing in research and development or acquiring a rival company. Apart from reducing the number of outstanding shares, an expanded share buyback signals management’s confidence in the company’s future and is construed as a bullish sign by investors. Companies that have little leverage and sound credit ratings may occasionally raise capital at low interest rates and use the proceeds for an expanded share buyback.

For example, Company X with a $2 billion market capitalization may have announced its intention to expend $100 million in share buybacks over the next fiscal year. Six months into the fiscal year, the company may find that cash flows are likely to be substantially higher than its projections. Company X wants to return this excess cash to shareholders, and decides to expand its share buyback by $25 million – or 25% – because of the greater flexibility it has in the timing of this expanded buyback, compared with dividend payments.

Assume Company X had 100 million shares out when it commenced its buyback, with each share trading at $20. Over the course of the year, X may repurchase 4 million shares at an average price of $25 each through its regular buyback, and an additional million shares through the expanded buyback. The company’s outstanding share count would be 95 million at the end of the fiscal year, which means that the share count has decreased by 5% including the expanded buyback, rather than 4% if the buyback had not been expanded.  

 

RELATED TERMS
  1. Outstanding Shares

    A company's stock currently held by all its shareholders, including ...
  2. Shareholder

    Any person, company or other institution that owns at least one ...
  3. Retail Repurchase Agreement

    An alternative to regular savings deposits. Under a retail repurchase ...
  4. Term Repurchase Agreement

    Under a term repurchase agreement, a bank will agree to buy securities ...
  5. Accelerated Share Repurchase - ...

    A specific method by which corporations can repurchase outstanding ...
  6. Repurchase Agreement - Repo

    A form of short-term borrowing for dealers in government securities. ...
RELATED FAQS
  1. What is the difference between redemption of shares and repurchase of shares?

    Sometimes, shares of stock offered by a company are not regular, market-driven common shares. Instead, they may be preferred ... Read Full Answer >>
  2. How does debt-to-capital change when a company issues new shares of stock?

    The debt to capital of a company changes when it issues new shares of stock by decreasing its amount of total debt in relation ... Read Full Answer >>
  3. How does additional equity financing affect existing shareholders?

    Additional equity financing dilutes existing shareholders. There are two types of candidates for equity financing. One is ... Read Full Answer >>
  4. Do stock splits and stock dividends affect stockholder equity?

    Stockholders' equity represents the capital portion of a company's balance sheet. The stockholders' equity can be calculated ... Read Full Answer >>
  5. What are the benefits for a company using equity financing vs. debt financing?

    Most companies use a combination of debt and equity financing, but there are some distinct advantages of equity financing ... Read Full Answer >>
  6. What companies will typically exercise buybacks, and why do they do it?

    In stock market terminology, a stock buyback refers to the repurchasing of shares of stock by the company that issued them. ... Read Full Answer >>
Related Articles
  1. Investing Basics

    Will Corporate Debt Drag Your Stock Down?

    Borrowed funds can mean a leg up for companies or the boot for investors. Find out how to tell the difference.
  2. Fundamental Analysis

    How To Value An Internet Stock

    An academic study, published several years after the peak of the dot-com bubble in March 2000, accurately described just how whacky internet valuations grew until the bubble burst. The study's ...
  3. Investing Basics

    What Is The Impact Of Research On Stock Prices?

    The answer to this question is directly related to the importance of information in the marketplace.
  4. Investing Basics

    Impact of Share Repurchases

    Share repurchases can have a significant positive impact on an investor’s portfolio and are a great way to build investor wealth over time.
  5. Investing Basics

    Investing In Stock Rights And Warrants

    Many companies choose to issue rights or warrants as an alternative means of generating capital to avoid dilution of existing share value.
  6. Investing Basics

    A Peek Into Shareholder Meetings

    Shareholder meetings can be glamorous, exciting or controversial, but not particularly revelational. Here's a quick look at what to expect.
  7. Investing Basics

    Inflation's Impact On Stock Returns

    When stocks are divided into growth and value categories, the evidence is clear that value stocks perform better in periods of high inflation, and growth stocks perform better during periods ...
  8. Bonds & Fixed Income

    A Strategy For Optimal Stock And Bond Allocation

    We tell you how this strategy avoids downturns, improves performance and invests in the best asset classes.
  9. Taxes

    Cut Employee Stock Option Taxes With AMT Credit

    Learn how refundable AMT credits can help you save on taxes, AMT bills and more.
  10. Investing Basics

    What are Ordinary Shares?

    Ordinary shares are any type of shares that are not preferred and don’t pay any type of predetermined dividend amount.

You May Also Like

Hot Definitions
  1. Expected Return

    The amount one would anticipate receiving on an investment that has various known or expected rates of return. For example, ...
  2. Carrying Value

    An accounting measure of value, where the value of an asset or a company is based on the figures in the company's balance ...
  3. Capital Account

    A national account that shows the net change in asset ownership for a nation. The capital account is the net result of public ...
  4. Brand Equity

    The value premium that a company realizes from a product with a recognizable name as compared to its generic equivalent. ...
  5. Adverse Selection

    1. The tendency of those in dangerous jobs or high risk lifestyles to get life insurance. 2. A situation where sellers have ...
Trading Center