Glossary term

Buyback

When a company repurchases its own shares.

Buybacks reduce the number of shares outstanding, which can increase each remaining shareholder's ownership. Buybacks create value when shares are repurchased below intrinsic value and the company still has enough cash for the business.

Example: A company that reduces its share count by 5% gives each remaining share a larger claim on future profits.

Where this appears

Company quality step 5: shareholder returns