Stock Buyback:When,How

Stock buyback is a program where a company use its cash to buy back its own stock at an open market,
the purpose is to reduce the amount of shares outstanding and thus causing the remaining shares to be
more valuable. When a company buys back shares of its own stock from the public in an open market,
it is referred to as stock buy back.

Buyback will change financial ratio. A buyback will increase return on assets (ROA) because cash (asset)
is used to buyback stock. Return on equity (ROE) will increase because there is less outstanding equity.
Earning Per Share (EPS) will increase because the number of outstanding stock decrease, thus the
Price-Earning Ratio (P/E) will decrease. The lower the P/E, the better it is.

When does the Company buyback its Share

When the company thinks that current stock price is too low. Thus, when a company buying its own shares,
it says management believes that the market has gone too far in discounting the shares, which means its a
positive sign to the investor.

One Should always have knowledge about this Risk Management