What is a share repurchase?

A share repurchase, also known as a buyback, refers to the process in which a company buys back its own shares from the marketplace. This activity results in a reduction in the number of outstanding shares. Companies might engage in share repurchases for various reasons, such as to return surplus cash to shareholders, increase earnings per share (EPS), or signal confidence in the company’s own financial health. By reducing the number of shares on the market, the remaining shares may have a higher value, which can positively impact shareholders' wealth.

The other options describe different financial actions. Increasing dividends pertains to returning profits to shareholders in the form of cash instead of repurchasing shares. Reducing debts involves utilizing available cash or capital to pay off loans or liabilities, which is distinct from buying back stock. Issuing new shares refers to creating additional shares to raise capital, which contrasts with the concept of reducing the overall number of shares through a repurchase. Each of these actions serves different purposes within a company’s financial strategy.