Why Does A Company Buy Back Its Stock

This is actually an amazing questions, because what you are asking is, if I have a business and its already mine why would I spend money to have more of it, if its already mine, I already own it. It does make sense, except that its not fully yours and that you are buying back equity within your own company.

Example of a partners that wants to leave and this will increase your interest in the company buy buying them out

????Call Me????: https://bit.ly/30IBr0i

????Second Channel????: https://bit.ly/3c4sVPS

????????‍????Financial Freedom Course????????‍????$100 OFF CODE: LONGTERM
Link: https://longtermteam.teachable.com/p/financial-freedom-steps-from-nothing-to-freedom

????MY M1 FINANCE PORTFOLIO???? PLUS $10
Link: https://m1.finance/37SHd4241z-N

1. Lets break it down

-If I start a company on my own and let’s call this Bryson Motors and I specialize in a new form of Transporation called walking, and for teaching this fine art of course I charge a subscription fee

-Now this company turns out to be so successful that I consider going public, the minute I go public there is a portion of my company that I’m going to sell to the public

-So effectively if I sell something to someone else or give it to someone else ( it no longer belongs to me ) – no take backs remember that

So thing about like this: on a smaller scale

-I have a business and you value the business to be worth 1 billion dollars you want to buy 10% for 100m

-When you buy that 10% that’s no longer mine, now we both own, although you have no control

-Same thing when I buy a piece of apple, that piece is my piece and im not sharing it

2. So why would a company buy its stock from other people

The answer is simple

If a company makes extra money it can do 3 things usually

First: it can payout a dividend

-Lets say per every share the company has, easy person makes about $10 per share

-So the company can say we are going to keep $5 to keep running the business and growing it and payout $5 to the owner which are us the shareholder

Second: it can use that money to make money

-Whether it expand operations, buy out the competitors or just hold out to it looking for opportunities

-If currently the company makes money then we make more money

-The goal that if the company keeps $1 it better worth more $1 in present value for us ( because what’s the sense of you keeping my money and then giving me less later )

Third it can do is Repurchase shares:

-So again lets say we have business and we have 3 partner you and I who started the business and Paul who just cares about money ( evil Paul, jk I love Paul that my editor but in this example he sucks )

-So if the company is worth $10 and each of own 33% and paul wants to sell his shares at $2, effectively by buying at discount we just increase out equity and we just got richer

-But if wanted to sell it at $5 we would say what are you stupid, so buying shares back at a discount or a fair price actually helps the existing owner

3. Obviously this is the simple explanation

But in the world there are other reasons this is done

First this can directly sometimes increase share price

-So companies might buy back shares to boost share price not caring if they buy a reasonable price

-And that immoral because it goes against shareholders interest

Saves money on taxes

-If the companies buy back shares, and increase makes the existence shareholder richer

-That just happened without issuing out a dividend, which is taxed as regular income

-So if you don’t need the money, you wont be taxed and if you do need the money you can just sell

Offset dilution

When you issue more shares the existing partner ownership goes down

* PRO TIP*
INFORMATION IS EVERYTHING
????1 on 1 Talk + My Budget + Stock Investments????
https://www.patreon.com/tommybryson

????Merch????
https://teespring.com/stores/tommybryson

✅2 FREE AUDIOBOOKS✅
https://amzn.to/2Enayo8¬¬¬

????M1 FINANCE $10????
https://m1.finance/37SHd4241z-N

????ACORN FREE $5????
Link: https://acorns.com/invite/38EYSU

⚡FREE KINDLE UNLIMITED⚡ (traditional reading)
Link: https://amzn.to/2VGbxt9

????????‍????DISCORD PRIVATE GROUP????????‍????
https://discord.gg/EcZEHpA

My Camera Gear: https://www.amazon.com/shop/tommybryson

✔ Help Us Reach 500,000 Subscribers: https://goo.gl/0wvm6w

????All My Social Media????
Link: https://linktr.ee/tommybryson

*Some of the links and other products that appear on this video are from companies in which Tommy Bryson will earn an affiliate commission or referral bonus. Tommy Bryson is part of an affiliate network and receives compensation for sending traffic to partner sites. The content in this video is accurate as of the posting date. Some of the offers mentioned may no longer be available. I’m an Accountant but I’m not your Accountant, always review information with your Accountant/CPA and your Financial Advisor.

source