RE:Stock buy-backs Increase earnings per share
Companies generally don’t like to acknowledge this one, but the reality is that buybacks can make a company’s earnings growth appear better than it actually is.
Let’s say that Company X has 10 million outstanding shares and earns $20 million in profit this year. Some simple math shows that its earnings per share (EPS) for the year were $2. However, let’s say the company buys back 1 million shares of stock -- reducing its share count to 9 million -- and earns $20 million again next year. Now, because there are fewer shares, the company’s earnings are $2.22 per share. It appears that earnings grew by 11% even though the company generated the exact same amount of profit.