Share Market / What is share buy back, how do you and the company get benefit?

Vikrant Shekhawat : May 03, 2024, 08:09 AM
Share Market: If you also earn from share market then this news is useful for you. Nowadays most of the people invest in the stock market but only a few people know the meaning of the terms related to the stock market. You must have heard many times that an XYZ company is doing 'share buy back', but do you know its meaning? If not, then today we will tell you what is share buy back, how companies and investors benefit from it…

Actually, in the tender offer the company offers to buyback the shares at a fixed price. Companies also give compensation to shareholders for tendering shares, so that shareholders do not stop holding the shares. Whereas in open market offer the company buys its shares from the sellers of the stock exchange.

What is share buy back?

When any company has a large amount of cash, then the company chooses the option of share buyback to provide more value to its investors for their investment. Under this, the company buys back its shares from investors from the market at a fixed price. This is called share buyback. Often companies repurchase their shares at a price higher than the market price, so that investors can get more benefits. Shareholders taking buyback offers have to fill the application form and indicate how many shares they want to tender.

How do companies buy their shares?

The company buys back its shares in two ways. The first method is tender offer and the second is open market. According to experts, whenever a company buybacks its shares, it is always considered positive. The company buys back its shares present in the market through buyback. The company always buys back shares at a price higher than the prevailing share price, which benefits the shareholders.

What benefits do companies get?

The first benefit that companies get from share buyback is that the company once again gets an opportunity to invest in itself. Buyback increases the earnings of allotted shares. Through buyback, companies gain more control over their company, so that apart from the existing shareholders, no other shareholder can control the company.

How do investors benefit?

After the company, let us now talk about the benefits to the investors who have bought shares of that company. When a company does a buyback, the company gives more money to the shareholders to buy its shares, due to which along with the value of the shareholders, the value of the company's shares also increases.

Due to increase in the value of shares, shareholders sell their shares to the company at a higher price. Buyback lets investors know the future growth of that company, after which shareholders can consider keeping or leaving those shares.