Question

Q.4. What do you mean by Buyback of stocks? Why the companies are buying back their stocks? What is your opinion about the buying back?                                                

Answer 1

What is Buyback of Stocks, it can be understand from below pointers:

1. Buyback of Stock is a repurchase of Stock by the company issued by it from the stockholders.
2. In Buyback of Stock, company pays to the stockholders at market rate or any rate determined, and repurchase the stocks from them.
3. The Buyback can be done from the market i.e. open market or from the stockholders directly.
4. The Buyback helps companies in Equity Consolidation, increase in controlling interest by ownership consolidation, utilising excess cash flow, increase in market price of stock, good impact on company reputation, in improving various financial ratios etc.

Why Companies goes for Buyback of Stocks:

Buyback of Stock helps companies:

1. Increase in Conrolling Interest by Ownership Consolidation
2. Equity Consolidation
3. Utilisation of Excess Cash Flows lying with the company
4. Increase in Market Value of Stock, as it seems to be a good sign.
5. Good impact on Company Reputation
6. It helps in improving various financial ratios

My Opinion about buying back the stock:

We need to evaluate various factors while determining buying back the stock:

1. How the economy is?
2. What is the stock price in the market, is it undervalued?
3. Company's future plan?
4. Cash Flow utilisation plan?
5. Need to control for betterment fo company?

If the company wants to have ownership control, not needed cash flow in near term, economy is not in good shape, stock is undervalued etc. the company may go ahead with buying back the stock.