Why do companies buy back their common stocks?

**xxyygorich** Tue Nov 15, 2005 11:25 pm

Why do companies buy back their common stocks?
Hi Guys,

Is there anyone who can share some light on the folloing questions?

Thanks a lot.

Is a stock repurchasing program good for investor or NOT?

What is the advantages for the company to buy back its own stock?

If the stocks were bought back, should these stocks be counted in when the company calculates per share earning?

**blast_investor** Wed Nov 16, 2005 2:52 pm

Well, stock repurchase is typically good.

After the company purchase own stock from stock market, the company would cancel these shares in the book so that the ownership of a particular shareholder will own more % of company after the repurchase.

Another way to look at this is that after repurchase, the per share earning and per share book would increase because total share count decrease.

However, I would want to point out that for some technology companies such as Cisco (CSCO), the repurchase does not add that much value.
The reason is that CSCO historically issues lots of options to its managers and employees every year so that dilution is pretty big. By repurchasing CSCO shares, essentially CSCO can maintain same total share count. However, it costs pretty big money to repurchase shares and the repurchase is simply to pay for options, not really decreasing total share count.

Therefore, investors need to differentiate "true share repurchase" which is decreasing share count, verses share repurchase just to pay for option dilution.

**yhan** Sat Nov 26, 2005 1:56 am

Is the same situation in Oracle as well? The CEO sold 1 million shares every week in Aug/Sep! I won't buy a stock like this

**blast_investor** Sat Nov 26, 2005 6:36 pm

Almost all technology stocks in NASDAQ have the problem as CISCO has.