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Why do companies buy back their own shares?

The general answer is something called in the industry by the jargon term "capital management". Sounds grand, but what it means in simple terms is this:

If the business has surplus cash it has a choice. It can either invest it in the business, or it can pay it to the shareholders. The return on holding cash will tend to be lower than the rate of return on the main business and than the rate shareholders could invest it elsewhere. So, it makes sense to buy back some shares unless the company has good uses for the cash. The company could also pay a special dividend or it could make a repayment of capital. Usually, tax considerations will drive the decision on the method used. One advantage of buying back the shares is that it increases the earnings per share on the remaining shares. It also means that those shareholders who want out can do so, while others can stay with their entire holding.

There is another reason. The company might be able to borrow money cheaper than the return it pays to the shareholders on the equity, called