What this lesson is about
When a company buys back its own stock, fewer shares are left outstanding. Which mechanically boosts earnings per share, whether or not the business actually improved.
Part 1 of 2
When a company announces a $10 billion stock buyback, its earnings per share can rise even if total profit doesn’t change. This isn’t a magic trick. It’s simple math. If a company has 1 billion shares and buys back 100 million of them, that same total profit is now divided among 900 million shares instead of 1 billion. This mechanically raises the profit-per-share number.
Companies buy back stock for real reasons. They return excess cash to shareholders as an alternative to dividends. They signal confidence that the stock is undervalued. They also offset dilution from employee stock compensation.
Quick check
What does a company do in a stock buyback?
Part 2 of 2
Quick check
How does a buyback mechanically affect earnings per share (EPS), even if actual profit doesn't change?
AAPL's real, most recently reported annual buyback dollar figure from SEC filings.
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