Reference no: EM133228788

1. A stock buyback is when a corporation purchases shares of it's own stock on the secondary market using cash.

Why are corporations doing this? Corporations buy their own stocks to increase the stock's worth. This benefits their shareholders by increasing the demand for their stocks and therefore amplifying their value.

What effect does this have on the corporation? The company can look more financially attractive by increasing the company's EPS while lowering their shares outstanding. However, because they are using cash, they will have less funds for company growth, development, and emergencies. Also, corporations often finance stock buybacks which gives them loan debt.

What effect does this have on stockholders who are selling their stock back? Because stock buybacks increase demand, they can help stockholders make more profit, but this can also give stockholders a false perception of the company's financial status.

What is my opinion? From my research, I can see that there are many pros and cons to stock buybacks. I think as long as the company is doing it sparingly where it does not overly inflate the EPS and financials, it's acceptable. The company also needs to ensure they have enough cash on hand to fund company expansion and improvement.

2. According to CNBC, there was a dramatic decline in buybacks during the bulk of the Covid-19 outbreak and now companies are left with an an excess in capital. Buybacks aren't inherently bad or good for anyone, and it's very much up to the corporation to make smart moves regarding them. For instance, a buyback has the potential to raise earnings per share which is great for both the company and current stockholders, but then there are companies like IBM that did buybacks during the Great Recession, leading to negative returns for their shareholders and steadily declining shares. My feelings towards buybacks are pretty negative when you consider how poorly many employees are treated and paid while shareholders and corporate big wigs get to reap the rewards. Railroads reported over $10 million in stock buyback profit, which shareholders again were able to benefit from. Meanwhile, railroad workers are left with stagnant wages and attendance policies that are so strict employees are penalized for taking time off for medical care.