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Reading a business

Lesson 80 · Written for kid, teen, and little

Share Buybacks

A buyback removes shares, so each share that is left is a bigger slice.

The idea

A buyback is when a company spends its own cash to buy back some of its own shares and retire them. Fewer shares now exist, so every share still out there is a slightly bigger slice of the same company. Owners often like this because their ownership percentage rises without them buying anything. But the cash is really gone, so a buyback is not free — and it does not promise the share price will go up. 🍕

A

Words to know

5

Buyback

When a company buys back its own shares and retires them. Fewer slices means each remaining slice is a bigger share of the pie.

Shares outstanding

How many shares of a company are held by shareholders. If the count falls from 1,000 to 900, each remaining share represents a larger ownership percentage. That does not guarantee a higher share price.

Ownership stake

The percent of a company that your shares add up to. 10 shares out of 1,000 is 1%.

Earnings per share

The company's profit divided by the number of shares. $3,000 across 1,000 shares is $3; across 900 shares it is $3.33.

Dividend

Cash a company pays straight out to its owners. A buyback shrinks the share count instead of sending you $5.

Try it — no accountSort into groups

Buybacks get talked about a lot, and some of it is wrong. Let's sort it out.

Sort each statement into what a buyback really does, or what it does not do.

0 / 6 sorted

In the full lesson

  1. 1Sort into groups
  2. 2Work out the number
  3. 3Make the call

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