Share Buyback
A buyback is a company using cash to repurchase its own shares on the market and retire them. With fewer shares outstanding, earnings per share and each share's claim on the company both go up. It is the other way, besides dividends, of returning capital to shareholders.
How to read it
Look at net buybacks: the amount repurchased minus the stock-based compensation issued to employees. At many tech companies, buybacks merely offset dilution and the total share count does not actually fall.
Buybacks plus dividends as a share of free cash flow is the shareholder payout ratio. A figure above 100% for an extended period means the company is drawing down its cash pile or borrowing to fund repurchases.
Common pitfalls
- Companies tend to buy back the most when the stock is high and cash is plentiful, and pause when the stock is depressed. The timing does not always work in shareholders' favor.
On FinDog
Each earnings analysis page reports the dollar amount of buybacks and dividends for the quarter. The Decision Panel on each stock page shows the buyback and dividend record for the past four quarters.
See it on a stock page →Related terms
- Free Cash Flow (FCF)Free cash flow is operating cash flow minus capital expenditures. It is the cash a company is genuinely free to use: for buybacks, dividends, paying down debt or acquisitions.
- Earnings Per Share (EPS)Earnings per share is net income divided by shares outstanding: how much profit each share earned during the period. It is the most closely watched number in any earnings report, and it is also the denominator of the P/E ratio.