Accounting: Quick Fix

1334 Words Feb 11th, 2013 6 Pages
How will a buyback of shares provide a “quick fix” for EPS (earning per share)?
A buyback allows companies to invest in themselves. By reducing the number of shares outstanding on the market, buybacks increase the proportion of shares a company owns. Buybacks can be carried out in two ways:

1. Shareholders may be presented with a tender offer whereby they have the option to submit (or tender) a portion or all of their shares within a certain time frame and at a premium to the current market price. This premium compensates investors for tendering their shares rather than holding on to them.

2. Companies buy back shares on the open market over an extended period of time.
The typical advantage of a share buyback is that it increases
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A company with poor financial ratios and shady recent earnings results that announces a stock repurchase should be looked upon with much more trepidation. The next time you see a stock buyback announcement; take a close look at the company involved before making a final determination of what it may mean for the future of the stock.
Is a share buyback ethical?

In this case, a stock buyback is ethical. International Network Solutions is considering a share buyback which is, in effect, an investment in the company 's own stock. They are purchasing stock because they expect to enhance shareholder value. In an era of abundant IPOs and stock placements, corporations also are announcing record buybacks of their outstanding shares. Repurchases serve a variety of purposes, from increasing earnings per share to providing stock for employee benefit plans. Although buybacks can be a sound part of a publicly held corporation’s financial strategy, they are complex endeavors that involve SEC rules, proper accounting and disclosure under GAAP, and certain federal income tax implications (CPA Journal, 2007). There are several cases when a share buyback is not ethical and it mainly deals with insider information. Below are examples of unethical share buybacks.
A stock buyback will not be ethical if a company buys back its shares at the same time that executives are selling

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