Share Buyback
When a company uses its cash to purchase its own shares on the open market, reducing shares outstanding and boosting EPS.
A share buyback (or stock repurchase) is when a company allocates capital to buy back its own shares. The purchased shares can be retired (reducing shares outstanding permanently) or held as treasury stock.
Buybacks are the primary alternative to dividends for returning cash to shareholders. By reducing the share count, they mechanically increase EPS and book value per share without any change in underlying earnings — which can inflate per-share metrics.
Critics note that buybacks done at inflated prices destroy shareholder value. Defenders argue they are flexible (unlike dividends, a company can stop buybacks without a negative signal). In the US, buybacks surpass dividends as the primary form of capital return in most years.
On the desk
A company earns $500M with 100M shares outstanding: EPS = $5.00. It spends $200M buying back 10M shares, leaving 90M outstanding. Next year, same $500M earnings but EPS = $500M ÷ 90M = $5.56 — a 11% EPS boost with zero operational improvement.