Fewer shares, bigger slices

Watch your green slice.

A company can use its cash to **buy back its own shares** from investors. Watch what happens to the shares that are left, including yours.

You didn't buy anything, yet you own a **bigger** slice, because there are fewer shares in total.

What a buyback is

• The company buys its own shares from investors in the market — Shareholders who want to sell can sell to the company. The shares it buys back are taken out of circulation.
• Fewer shares outstanding the result — Each remaining share is a bigger slice of the company and of its profits.
• Why do it? reasons companies give — To raise profit **per share**, to strengthen the promoters' stake, to fend off a takeover, to support the share price, or to show confidence in the company.

**Remember:** a buyback is often read as a sign of confidence, but it doesn't promise the price will rise.

Shrink the share count

Slide the buyback.

The company earns **₹200 crore** a year and has **20 crore** shares. You own **2 crore** and don't sell.

Example figures. This leaves out the cash the company spends on the buyback.

Buyback or dividend?

Both hand cash back to shareholders, in different ways.

• Dividend cash to everyone — Every shareholder gets cash per share. The number of shares doesn't change.
• Buyback cash to those who sell — Only shareholders who sell get cash. Those who stay end up owning a bigger slice.

Check — Question 3 of 4

Reasons for a buyback?

What you now know

• In a buyback, a company buys its own shares from investors.
• Fewer shares remain, so each one is a bigger slice of the company and its profits.
• If you don't sell, your percentage grows without buying anything.
• Companies give reasons such as raising profit per share, confidence, or fending off a takeover.
• A buyback is usually read as positive, but it doesn't promise a higher price.