Buy Back

Why Companies buyback their shares

 Improving financial ratios

 Overcome undervaluation
 Increase ownership consolidation
 Equity funding is a “loan” for original owners
 Unused cash
 Mature industries with low growth prospects want to reduce “liability” otherwise they will
have to continue paying dividends
And also,

 Take advantage of low interest rates

 Take advantage of bear market
 In economic recession dividends are cut and share price falls….using cash to buy back shares instead of
paying cash dividend will reduce the future dividend payments and also maintain price
 ROE and EPS increases
 This is investing in itself & Investors see it as a positive sign
 Remember companies can reissue shares as well
 Take loan and buy back shares …. Advantage is that interest is tax- deductible, rates could be far lower than
dividends….but credit rating agencies consider it as a negative sign
  
 Buy back is generally positive for overall economy as consumer confidence increases, large transactions are
viewed as large economic activity
Advantages of Listing

 Access to capital from St Ex and other FIs

 Lower cost debt
 Easy collateral
 Flexible return (div vs interest)
 Tax liability (unrealized gain is not taxed), Clientele effect
 Image building, profile, brand-name
 Bring in discipline
In Pakistan

 Companies are reluctant to list because….