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Corporate Repurchase - Research Paper Example

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In this paper we have discussed what a 'corporate repurchase' or 'corporate buyback plan' is. We have also identified different situations in which corporations repurchase their own stocks and the reasons for doing so. When a company limits the number of its outstanding shares available for the public, it's earning per share (EPS) ratio increases, which is an indicator of the business' profitability…
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Corporate Repurchase
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Download file to see previous pages This is an indication of a growing business when people are buying business' stocks. The business growth benefits both, the owners, as well as the investors. In order to extend the stock fundraising, corporations repurchase their stocks. This process is commonly known as a 'corporate repurchase'. 'Repos', 'buybacks', 'reverse repos', 'or 'repurchase agreements' are also some terms implying the same process. (WiseGEEk, 2009)
A repurchase agreement, also known as lending buyback occurs when all or some of the securities, comprising of bonds, stocks, or money markets; are sold by the corporation at a premium. The corporation agrees to buyback these securities later at a higher price. A repurchase agreement is very similar to a 'secured loan' in different ways as the securities are taken as collateral. Typically, the repayment takes place after a few months. This is the case of a short option loan. Long option loan, for which repayment can be prolonged up to two years, are not so common. (WiseGEEk, 2009)
When corporations buy their own stocks from the general market or stockholders in a systematic fashion, it is called a corporate buyback. In order to cut down the costs of the repurchase agreement, the corporations can combine it with a corporate repurchase program. ...
This is a possibility when there are two differing ideas. (WiseGEEk, 2009)
A corporate repurchase program can strategically explain that a company thinks of its stock in the market as undervalued. When the companies offer a buyback plan, they are actually cutting down the amount of outstanding stocks, as corporate heads are allowed to buy stocks from stockholders. Thus, the stock price goes up. (WiseGEEk, 2009)
A corporate repurchase may also be undertaken for other reasons. It can be used to offset the costs that are incurred when companies offer a compensation package to the workers. It may also be used to strengthen internal control. A company's stock earnings weaken when it is offering stock options or provides for a 401K. Stocks are brought back into the control of the company when a buyback occurs. The worth of stocks also increases for the existing stockholders. (WiseGEEk, 2009)
A corporate repurchase can be carried out in several ways. For instance, existing stockholders can be consulted. An offer is made to them to purchase the stocks at a premium. Investors do not get much time to accomplish it. Another way of repurchasing stocks is by acquiring stocks on the market. This process takes a long time. Corporate repurchase is indeed a very effective way that enables businesses to purchase the company back from stockholders. If 100% of the company's stocks are bought back, the corporation may become private and abandon the public trade method. (WiseGEEk, 2009)
Buybacks are a way of administrating the buyers' market. The process limits the stocks for investors. Supply and demand of stocks is controlled when a company engages in a buyback. A buyers' market is transformed into a seller's market as the ...Download file to see next pagesRead More
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