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Strategies & Market Trends : Value Investing

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To: Bob Rudd who wrote (6481)	3/30/1999 6:41:00 PM
From: Freedom Fighter	Read Replies (1) of 78507

Bob, >>I'm not certain, but I think buying back stock, a practice which is increasingly displacing dividends, actually lowers book value.<< If done from free cash flow it will have the effect of raising book value per share. A simple model: Assuming no reinvestment of earnings and all repurchases, we would have the same net worth divided by fewer shares. However, we now have a lot of companies borrowing money and repurchasing shares at a substantial premium to book in addition to using free cash to do the same. This lowers book value per share and often raises EPS. IBM is doing this at present and Campbells is another that did it. There are many other examples. Wayne

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