Term · Capital Measures & Financing
Share buyback
In briefIn a share buyback, a company acquires its own shares and thereby reduces the number of outstanding shares. For small caps this is rarer than for large corporations, but it can be a strong signal when management puts its own capital into its own stock.
Definition
Acquisition of a company's own shares, whereby the number of outstanding shares decreases.
How it is calculated
Formula. Buyback ratio = buyback volume ÷ market capitalisation.
Why it matters for small caps
In the small-cap space, share buybacks occur less often than at large corporations; however, they can be a strong signal when management invests its own liquidity in the stock.
Common misreadings
- It is automatically taken as a positive signal, although a buyback combined with high leverage should rather be viewed critically.
In the process
Frequently asked
What is a share buyback?
It is the purchase of its own shares by the company. As a result, the number of outstanding shares falls.
How do you assess a share buyback?
You relate the buyback volume to market capitalisation. It is also decisive whether the purchase price is attractive and the financing is sound.
Is a share buyback always positive?
No, combined with high leverage it should be viewed critically. Putting capital toward debt reduction can then make more sense.
Related terms
Sources
Primary
Bundesministerium der Justiz – Aktiengesetz (AktG)
https://www.gesetze-im-internet.de/aktg/
https://www.gesetze-im-internet.de/aktg/
Methodology
IFRS Foundation – IAS 33 Earnings per Share
https://www.ifrs.org/issued-standards/list-of-standards/ias-33-earnings-per-share/
https://www.ifrs.org/issued-standards/list-of-standards/ias-33-earnings-per-share/
Education only, not investment advice. Ranges and thresholds are didactic orientation values, not an official standard.