In an article entitled \"Buybacks or Givaways,\" CFO.com reported that \"large r

Question

In an article entitled "Buybacks or Givaways," CFO.com reported that "large repurchase programs require a whole lot of capital. Critics of buybacks contend that companies can put their cash to better use. They also point out that investors are more likely to reward a company that attempts to grow its business- rather than artificially inflate its stock price." The article goes on to quote an investment banker as saying that "[stock repurchase programs] can be a sign that a company can't find anything better to do with its cash." A. Describe some other uses for a company's cash. How could these uses benefit shareholders more than a stock repurchase? B. Why might the stock market interpret a company's purchase of its own shares as a way to "artificially inflate" its stock price? C. If the stock market is trading at very high levels, what risks do companies face with their stock repurchasing plans?

Explanation / Answer

A. some other uses for a company's cash which give a benefit shareholders more than a stock repurchase.

1. If Compary Industrial ROR is more than bank interest rate than its benefits to Shareholder, Company Invest cash in own business or in other business.

2. If Company Have any Loan Libilty which Interest rate is more than ROR than its benefit to Shareholder first paid out Loan Amount.

3. Invest in Long term Project which is Benefit to Shareholder

4. When Market rate is stable than Large amount of Investment Give a high rate of Interest compare to Small Investment amount. Than Large amount of Investment give a indirecty benefit to Shareholder.

B.

1. When Buyback amount of share is less than its Book value of share or net relisable value of assets.

2. When ROR of Company is higher than market rate of return

3. when assets of company are under valued in book.

4. Paying ratio of Dividend of Company is Higher than Other company.

C. Some of risks do companies face with their stock repurchasing plans

1. When stock is trading high than is book value or net relisable value of per share

2. there was a risk related to large cash outflow at high value

3. also risk to remain shareholder in decrease in stock price drasticly.

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