Hi Fifth Person… Re EPS… As mentioned in the course note, if net profit stays flat and EPS increases, it is a good sign as there is shares buyback by the company. However, why would EPS increases when there isn’t any decrease in shares when the number of shares stay the same through buying back of shares by the company? Or, have I gotten it all mixed up? :)
Questions › Category: Financials Quadrant › Hi Fifth Person… Re EPS… As mentioned in the course note, if net profit stays flat and EPS increases, it is a good sign as there is shares buyback by the company. However, why would EPS increases when there isn’t any decrease in shares when the number of shares stay the same through buying back of shares by the company? Or, have I gotten it all mixed up? :)
1 Answers
Hi Wee Leng,
When a company initiates a share buyback, the shares would be held as treasury shares. If treasury shares are written off, the number of outstanding shares would be reduced. If it is held in the company, these shares are redundant; no dividends and no voting rights. As a result, conservatively, I would not consider these shares (in existence) in my calculation of EPS, dividends, valuation, etc.
Hope that clears your doubt :)
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Wee Leng Koh asked 9 years ago
Rusmin Ang answered 9 years ago
Many thanks Rusmin.. got it now :)One other question I have in reference on treasury shares in reference to your answer. In what circumstances would treasury shares be written off?
That depends on the management. <br><br>Some grants the treasury shares to its employees as share options, restricted share plan, etc.<br>Some retains the treasury shares in the company.<br>Some gave out treasury shares to shareholders.<br>Some strikes them off.<br><br>You're welcome :)