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Advantages Disadvantages
It would increase the share price of the It could provide cover for stock
company due to increase in demand handouts.
and less supply.
This would increase the ownership of This would decrease the cash flow
family, which means they had more which in other words could affect the
influence and control over the liquidity of the company along with its
organization. ability to make capital investments.
In order to value the company properly, It could even decrease the amount of
the earnings per share is used dividend payment for the upcoming
frequently, therefore in order to bring a periods.
boost in the valuation, the buyback
would augment the earnings per share
figure.
This program shows that the company This would create problems for
was highly liquid, due to which it can minority shareholders.
easily afford such expensive program.
It would allow the owners to create It could support the management self-
their own dividend policy. interest as they might be supporting
this program with an aim to capitalize
on their stock option whenever the
share price rises for a short term.
• Asset base has decreased substantially due to the cash being used for share repurchase
• Shareholder’s Equity has also declined due to the outstanding shares being repurchased
Shareholding Structure:
1. Debt has a lower cost of capital 1. The company's asset base will
2. Increase leverage - invest in its decrease – it would have to borrow
business without increasing money if it wants to acquire
shareholders' equity another company or expand its
3. Deliver better return on equity production
4. Increased control for family 2. Increasing long-term debt may
members - reversing downward cause financial distress - larger
trend from IPO. portion of its EBIT is used to pay for
5. More flexibility in setting future interest expenses.
dividends per share 3. Loss of control for smaller
shareholders as family ownership
rises to 81%
4. Volume is reduced- reducing
liquidity of the stock is reduced in
the secondary markets