When a company initiates buyback of its own shares, the news is often received in a positive light - that the company deemed its current market share price as undervalued. Understanding the implications of share buyback of companies would help us make better investment decisions, as we seek to delve deeper behind the action and how it changes the face values of the various metrics.
Does the company genuinely think that its share price is under-valued? Does the company believe in its future earnings and growth such that it would rather invest in itself rather than invest elsewhere or pay down debts with the spare cash? Or does the move spell alternate motives? Summary of Shares buyback implications 1) ROE (return on equity) and EPS (earning per share) are artificially inflated as outstanding shares in the market reduced. 2) ROA (return on assets) is artificially inflated because cash holding ......