(18) Reducing Cash Outflow To Save Money For Company’s Growth
It is one of the most critical reasons behind share buyback announcements. Cash outflow is the total amount of funds that are paid out by an organization in a given period of time.
Some of the major reasons for cash outflow include salaries, supplies and maintenance, paying dividends, as well as paying interest on loans or servicing any debts held by the company.
A company may be required to seek additional financing options when cash outflows exceed the cash inflows. Therefore, companies often try to reduce cash outflows as much as possible.
It is something necessary to strengthen balance sheet. Stock buyback provides a great means to reduce their cash outflows to a significant level.
Simultaneously, they don’t have to cut their dividends which in turn send a negative signal to the market. Due to fewer outstanding shares, fewer dividends need to be paid to shareholders.
Thus, a lot of money can be saved in the long run after implementing stock buyback offer.
(19) Avoiding Scrutiny Of Accounts For Legal Action
It is one of the most shocking reasons behind share buyback announcements. Every publicly listed company is liable to its shareholders or investors.
They need to maintain legitimate accounts for the purpose of future inspections or scrutiny. However, certain dirty companies carry the possibility of account manipulation, or absence of corporate governance, or fund diversion, or corporate fraud, share price manipulation & many more.
Once these types of companies come under the radar of stock exchange regulators, they are likely to be scrutinized by auditors. Stock buybacks when done before time can provide a solution to prevent scrutiny of accounts.
It might appear as little suspicious when a company repurchases 100% of its shares from the market. But, it could be an immediate solution for such dirty companies to escape the process of monitoring of its books of accounts.
Thus, stock buyback offer to repurchase 100% of its shares & then delisting the company can help to prevent the legal consequences to certain extent.
- Reasons Behind Company’s Buyback Offer: Shutterstock