Ali,
There are many reasons why corporations choose to repurchase their common stock.
Typically, investors do not like to see companies hoarding cash. Per chance, do you recall Chrylser in 1993/94? Chrysler was hoarding cash and an investor, Kirkoran(?), wanted Chrysler to distribute the cash to shareholders...
From a finance perspective, cash on the balance sheet is not a good sign for investors. It could lead MGMT to purchase Assets that do nothing for the bottom line, such as fine art, jets, etc. This is called an agency problem.
Instead of buying back stock, MGMT could have raised the dividend, however most do not invest in intel b/c of its dividend. Intel's dividend is more symbolic, implicitly stating to investors that the company feels strongly about its future. Dividends are an inefficient means of distributing cash to investors since it is taxed twice. Once for the corporation b/c of profits, the second to investors.
However, let's look at one of your statements:
- Shareholders' equity dropped by $1,8B;
- Total assets dropped by $4.8B (10% decline);
- Cash and short-term investments dropped by $4.3B,
or decline of 31% ;
Assets minue Liablities equals Equity.
While total assets dropped by 4.8B, Equity only dropped by 1.8B. Why? The expenditures of cash were used to reduce their Liablities. Simple algebra...
-4.8 - Liablities = -1.8
Therefore Liablities = -3B..... |
