{"id":2994,"date":"2025-01-29T18:59:23","date_gmt":"2025-01-29T13:29:23","guid":{"rendered":"https:\/\/savart.com\/blog\/?p=2994"},"modified":"2025-04-09T22:21:00","modified_gmt":"2025-04-09T16:51:00","slug":"dark-reality-of-buybacks-corporate-actions","status":"publish","type":"post","link":"https:\/\/savart.com\/blog\/dark-reality-of-buybacks-corporate-actions\/","title":{"rendered":"Dark Reality of Buybacks &#8211; Corporate Actions"},"content":{"rendered":"<p><span id=\"input-sentence~0\">Many companies announce share buybacks\u2014but have you ever wondered why?\u00a0<\/p>\n<p>Before we get into that, let\u2019s clear one thing up: not all buybacks are a good sign. In fact, some companies use them as a tricky strategy.\u00a0<\/p>\n<p>But before diving into these tricks, let\u2019s understand a basic concept.<\/span><span id=\"input-sentence~1\">\u00a0<\/p>\n<p>What Are Corporate Actions?\u00a0<\/p>\n<p>A company\u2019s decisions can impact shareholders, either positively or negatively. These decisions are known as corporate actions, and they include dividends, stock splits, bonus issues, rights issues, and, of course, buybacks\u2014the topic of today\u2019s discussion.\u00a0<\/p>\n<p>What Is a Share Buyback?<\/span><span id=\"input-sentence~2\"><br \/>When a company repurchases it shares from its shareholders we call it as Buyback. Companies usally do buybacks when they have strong profits, more cash with them and if it is a growing business.<br \/>Companies also distribute the extra cash as dividends, and also buybacks serve another purpose.<\/span><span id=\"input-sentence~3\"> <\/p>\n<p>The EPS Trick: How Companies Play the Game\u00a0<\/p>\n<p>Let\u2019s say you\u2019re a shareholder in a company.\u00a0<\/p>\n<p>The company&#8217;s total sales = \u20b910,000\u00a0<br \/>After expenses, net profit = \u20b92,000\u00a0<br \/>Total shareholders = 100\u00a0<\/p>\n<p>Now, if the profit is divided among all shareholders:\u00a0<\/p>\n<p>\u20b92,000 \u00f7 100 = \u20b920 per shareholder\u00a0<\/p>\n<p>In stock market terms, this is called Earnings Per Share (EPS), calculated as:\u00a0<\/p>\n<p>EPS = Net Profit \u00f7 Total Outstanding Shares\u00a0<\/p>\n<p>So here, the EPS is \u20b920.<\/span><span id=\"input-sentence~4\">\u00a0<\/p>\n<p>Now, let\u2019s say the company buys back 20 shares. The number of outstanding shares reduces to 80, but the profit remains \u20b92,000.\u00a0<\/p>\n<p>Now, the new EPS is:\u00a0<\/p>\n<p>\u20b92,000 \u00f7 80 = \u20b925\u00a0<\/p>\n<p>EPS has increased from \u20b920 to \u20b925. But did the company\u2019s business actually improve?<\/span><span id=\"input-sentence~5\"> No! The only reason EPS increased is that the number of shares decreased.\u00a0<\/p>\n<p>This is a classic financial trick used to make the company\u2019s earnings look better without any real business growth.\u00a0<\/p>\n<p>The Dark Side of Buybacks\u00a0<\/p>\n<p>Some companies take this to another level by taking loans to conduct buybacks!<\/span><span id=\"input-sentence~6\">\u00a0<\/p>\n<p>So, how do you spot a problematic buyback?\u00a0<\/p>\n<p>If a company has no sales or profit growth but announces a buyback\u2014that\u2019s a red flag.\u00a0<br \/>If a company takes debt to fund a buyback\u2014that\u2019s another warning sign.\u00a0<\/p>\n<p>Not all buybacks are bad, but if they are used just to manipulate financial numbers rather than support real growth, it\u2019s a risky sign.\u00a0<\/p>\n<p>The Bottom Line\u00a0<\/p>\n<p>Always invest in companies with strong fundamentals and real growth, not just flashy financial tricks.\u00a0<\/p>\n<p>Liked this breakdown? Hit the bell icon for more insightful videos on smart investing!<\/span><\/p>\n","protected":false},"excerpt":{"rendered":"<p>Many companies announce share buybacks\u2014but have you ever wondered why?\u00a0 Before we get into that, let\u2019s clear one thing up: not all buybacks are a good sign. In fact, some companies use them as a tricky strategy.\u00a0 But before diving into these tricks, let\u2019s understand a basic concept.\u00a0 What Are Corporate Actions?\u00a0 A company\u2019s decisions [&hellip;]<\/p>\n","protected":false},"author":2,"featured_media":2995,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[1],"tags":[],"class_list":["post-2994","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-investments"],"acf":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v22.8 - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>Dark Reality of Buybacks - Corporate Actions - Savart Blogs - Investing Simplified<\/title>\n<meta name=\"description\" content=\"Are share buybacks always good? Not really! Some companies use them as a financial trick. 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