Question

Buying your company's stocks. What is the benefit in it? What is the downside of it? When should you consider buying your company's shares?

Answer 1

Buying out the company stock by the company is known as buyback of the stock and benefit of the buyback is related to buying the shares of a company at a lower price by the company itself because the company will be knowing the actual growth rate as they are the insiders and they will be trying to buy back their shares when they will feel like their valuations are lower or they will also be buying back share when they will feel like they do not want to float a higher amount of share in the market and they will like to control the company and they will be cutting upon the equity investment and encouraging the debt investment so they will be buying out the equity shares in order to fund the debt investment.

Downside related to buying out of the share is that it would be leading to a lower float in the market and prices could be influenced and share prices can even fall from the levels when the company has brought back the shares so it would also mean that the company will have to purchase those using cash flow so, the company is liquidity will be going down also

The company should be considered buying back its own share when it will feel like the market is valuing the company at a lower price or the company will be having a higher price when it will be properly discounted so they will be buying out their shares in anticipation of higher profit and higher growth and higher market price.