a share buy back, page-49

Ryan,

I think I know a little bit about the basic accounting equation as I have a degree in Accounting and Finance.

Im afraid to say that it is impossible to increase shareholder wealth (ie increase the share price) solely through a buyback. A buyback is just a way of distributing cash back to shareholders, working in a similar fashion to dividends.

Think of this little example. A company exists called ABC. The company is woth 30 million. There are three shareholders, each with equal shareholdings (10 million each). The company decides to undertake in a 10million buyback. It buys back all the shares from one of the shareholders. The company is now worth 20 million, and there are two shareholders each, both with 10 million worth of shares.

After the buyback there is no increase in shaerholder wealth for the remaining shareholders (they both still have shares worth 10million as before). Heck, if it was that easy to increase the shareprice, then all companies would do it and keep doing it!

Bubacks are merely to change market sentiment, and may be effective due to some other market factors... but nothing fundamental.