Buy-back

Glossary

Banking

Buy-back

A buyback is the act by a company of buying back its own outstanding shares from the open market. This reduces the number of shares in free float and increases earnings per share (a mechanical equation that divides earnings by the number of shares). It can also lead to a rise in the share price. Companies have used buybacks extensively in recent years: they have spent several hundred billion dollars to buy shares back. At one and the same time, buybacks are a way of returning capital to shareholders. But they also increase the size of executive bonuses as they trigger EPS-related or price-related payouts.

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