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Technology Stocks : Dell Technologies Inc.
DELL 120.45-0.1%Jan 12 3:59 PM EST
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To: Chuzzlewit who wrote (80283)11/14/1998 10:58:00 PM
From: BGR  Read Replies (2) of 176387
 
CTC,

Share buybacks and retirement do add to _shareholder value_ though not to the total company value. Assuming that company value remains unchanged before and after the buyback, since the company ownership is now distributed among fewer shareholders, the value for each remaining shareholder goes up.

For example, let's consider a company with zero excess cash in hand (all earnings re-invested) which takes on debt to buy back shares. The bondholder value goes down as now there is more outstanding debt for the same collateral (the company) but shareholder value goes up as now there is less ownership for the company. In other words, value is distributed from bondholders to shareholders.

In general, if the company has excess cash flow it can either buy back it's debt thereby increasing bondholder value or buy back it's stock thereby increasing shareholder value. If a company buys back it's debt, it's debt rating goes up, thus bond values go up and bond interest rates go down. If it buys back shares (and retires those) a similar phenomenon should be expected as well resulting in share price appreciation (other things remaining the same).

That is, the diluted EPS is in effect being used. Hence the diluted EPS growth is what counts.

-Apratim.
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