Buybacks!!!

What are buy backs?

When a company utilises its reserve to buy its own shares within a predetermined price limit, it is called buy back. BuyBack are useful when the companies' share volume have increased disproportionately and it wants to reduce the share capital. BuyBacks are useful for increasing the Earnings Per Share(EPS) of the stock or companies.With the reduction in few stocks of the company, Share prices tend to increase after buy back. More importantly the buyback effectively reduce the free floating shares, therefore reducing supply and increasing the demand for same quantity. Hence increasing the share prices.

Buybacks effectively increases the liquidity in the system. Buy Backs forces the company to spend. Unlike Bonus which is just accounting changes. Buybacks forces the company to spend which reduces the Share Reserve.

Buybacks effectively reduces the borrowingcapacity of the firm, since the leverage increase.

Unlike Bonus which is just the transfer of the Reserve into share capital. Buybacks efectively reduces share capital.

Buybacks are potent weapon for increasing the liquidity and rejuvenating the system with funds. Its highly effective in a tight liquidity situation.