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Explain why Share buy-backs are seen as an attractive way of altering a company’s capital structure and examine the circumstances in which they can ‘ensure appropriate share prices’.
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| Submitted: Thu Jul 11 2002
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Explain why Share buy-backs are seen as an attractive way of altering a company's capital structure and examine the circumstances in which they can 'ensure appropriate share prices'. For one to own a company's shares is to stake claim to the firm's earnings. Any enterprise that possesses capital in excess of its requirements (or earns profits) must necessitate one or more of a combination of possible 'Capital Management Policies.' Primarily, it may choose to retain and plough back these funds internally in order to expand potential operations such as the purchasing of other businesses, buying capital assets*, improving existing operating conditions within the firm etc.; secondly, it could return them to shareholders on a proportional basis in the form of dividends; and/or finally, by share 'buy-back' where the company can return capital to those owners who prefer to exchange their shares for cash.1 If the company does choose to drive...
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