The following pointers highlight what are buybacks impacts that are faced by a company’s different financial aspects.

Effect on Earnings Per Share (EPS)

Repurchasing a company’s shares lays a direct impact on its EPS by increasing the ratio significantly. It mainly happens because the net income tends to remain the same, while the total number of outstanding shares reduces post repurchasing.

Effect on Financial Statement

The money spent to repurchase company stocks would be recorded in the business’s earnings report and can also be found in the statement of cash flow under the head ‘financial activities as well as the statement of retained earnings.

Besides influencing the income statement of a company, the impact of share buybacks can be noticed in other financial statements as well.

For instance, in the Balance Sheet, the record of a company’s cash holding would reduce and in turn, would lower its total assets. Simultaneously, the amount of shareholder’s equity would also undergo a reduction. Notably, such a reduction would help improve performance metrics like Return on Equity (ROE) and Return on Asset (ROA).

Effect on the Company’s Portfolio

Usually, companies who have faith in their prospects indulge in the practice of repurchasing their company shares. Such a display of confidence is received positively by potential investors and existing shareholders and helps earn their trust significantly. In turn, it helps the company to enhance its market reputation and facilitates an increase in its share value naturally. All of this directly helps improve the venture’s portfolio significantly.

Effect on Increasing Shareholder Value

Business owners who opt for share repurchase are more likely to enhance their EPS significantly, and that too much faster than operational improvements. Investors scouting for profitable investment options tend to acknowledge companies with steady EPS as a better income-generating avenue with enhanced growth potential.

Further, it is believed that companies who are capable enough to repurchase their shares from shareholders have a grand market presence and robust pricing power. Hence, the practice of share repurchase not only helps to project a positive image of the company in the market but also comes in handy for potential investors.