Saturday, August 30, 2014 5:53:33 PM
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What Is A Stock Buyback?
When a corporation buys its own stock on the open stock market, it is considered a "stock buyback" and the shares purchased are re-titled "treasury stock." Before examining some of the potential benefits and pitfalls of a stock buyback, let's first review a couple of terms that will be used in this discussion:
Authorized Shares - the number of shares of stock a corporation is "authorized" to issue per their articles of incorporation. Additional shares can be "authorized" by the Board of Directors with approval of shareholders.
Outstanding Shares - the number of shares of stock that are held by investors (including employees and executives of the corporation). Treasury and Authorized-not-Issued shares are not included in this figure.
Treasury Shares - the number of shares of previously outstanding stock that has been repurchased by the corporation. Treasury stock can later be sold or retired based on a shareholder vote.
Float - the number of shares outstanding minus what is owned by insiders (people in the company, like the CEO, COO, CFO, President, Vice Presidents, etc.) and treasury stock.
Earnings Per Share (EPS) - Earnings divided by the number of outstanding shares of stock.
**Additional Notes To Above...
**Restricted Shares Are Part Of The Outstanding, But Not The Float. The Float Only Includes Free Trading Shares.
**If You Subtract The Outstanding From The Float, That Tells You How Many Restricted Shares Are Outstanding.
**To Determine The Number Of Shares Remaining In The Treasury, You Subtract The Outstanding From The Authorized.
**Shares In The Treasury Have Nothing To Do With The Buy Back, Except When Retiring Shares To Treasury. This Means A Reduction In The Outstanding.
**If Restricted Shares Are Retired, The Outstanding Is Reduced But The Float Remains The Same. If Free Trading Shares Are Retired Or Cancelled, The Float & Outstanding Are Reduced.
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