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Strategies & Market Trends : Value Investing -- Ignore unavailable to you. Want to Upgrade?

To: Bob Rudd who wrote (6492)	3/31/1999 9:19:00 AM
From: Freedom Fighter	Respond to of 78516

BOB, Most companies repurchase shares from their free cash flow (which is a portion of their earnings). Here's the point I was making. Assume a company has $10 of book value per share at the start of a year and earns $1 per share during the year. If the company pays it out in dividends, book value per share will still be $10 per share at year end. No increase in net worth and an equal number of shares. If the company buys back shares with it, the net worth that made up that $10 per share will still be present (the same), but it will be divided among fewer shares. So book value per share will increase at year-end. If the company buys back $2 worth of shares, (which is $1 dollar more than it earned), the book value per share will depend on whether the shares are repurchased at above book or below book. (the extra dollar is the key here) The act of paying a dividend or repurchasing a share is always removing net worth from the balance sheet, I was talking about start of year/end of year book value comparisons. I hope I'm clearer now. Wayne