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Question: When should a company buy back stock?

Answer: When it believes the stock is undervalued and believes it can make money by investing in itself. This can happen in a variety of situations. For example, if a company has suffered some decreased earnings because of an inherently cyclical industry (such as the semiconductor industry), and believes its stock price is unjustifiably low, it will buy back its own stock. On other occasions, a company will buy back its stock if investors are driving down the price precipitously. In this situation, the company is attempting to send a signal to the market that it is optimistic that its falling stock price is not justified. It's saying: "We know more than anyone else about our company. We are buying our stock back. Do you really think our stock price should be this low?"



Category Finance Interview Questions & Answers - Exam Mode / Learning Mode
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Question: When should a company buy back stock?
Answer:

When it believes the stock is undervalued and believes it can make money by investing in itself. This can happen in a variety of situations. For example, if a company has suffered some decreased earnings because of an inherently cyclical industry (such as the semiconductor industry), and believes its stock price is unjustifiably low, it will buy back its own stock. On other occasions, a company will buy back its stock if investors are driving down the price precipitously. In this situation, the company is attempting to send a signal to the market that it is optimistic that its falling stock price is not justified. It's saying: "We know more than anyone else about our company. We are buying our stock back. Do you really think our stock price should be this low?" Source: CoolInterview.com


Company can buyback it's share mainly two times, 1) when the shares are undervalued and 2) when other company is doing hostile takeover on your company. so this are the two main points when company can buyback their shares. Source: CoolInterview.com

Answered by: nikhil vora | Date: 10/5/2009 | Contact nikhil vora Contact nikhil vora


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