Share repurchase (buyback)
Principles of Finance glossary · Cost of Capital & Capital Structure
Definition
A firm's purchase of its own outstanding shares; an alternative to dividend distribution for returning capital.
Share repurchase (buyback) in plain English
A share repurchase is when a company uses its cash to buy back its own shares from investors, instead of handing that cash out as dividends. Both are ways of returning money to owners, but a buyback shrinks the number of shares that exist — so each remaining share now represents a slightly bigger slice of the company. Imagine a pizza split among 8 friends; if two friends are bought out and leave, the same pizza now feeds 6, so everyone left gets a larger piece. That's why buybacks can lift the value of each remaining share even though the company itself didn't get bigger.
Also called: buyback
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