Explain share buybacks
in theory if a company buys its own shares back with their extra cash, this shouldnt affect the market cap since they are just taking some shares out of float is this true in practice? in case of microsoft?
Creates scarcity as well as buying spree leading to other buying activity and price rise (potentially). Depends on many other factors though. GE for example sank a ton of money into buybacks at their peak price when their fundamentals were bad. Nobody believed them, stock price tanked, and their own buy back was rendered overpriced and a hopelessly huge waste of money. MS is much better off from fundamentals and cash flow perspectives but not everyone agrees that buyback at this top price in a likelytosink economy is a good idea. Moreover people start to wonder about the reasons for buyback. however in mss case we have been buying back steadily for several years now, in fact the employee stock is powered by such buybacks.
This is a good and nuanced answer. Thanks.
PS Stock split is another of those things that in theory shouldn’t change market cap. But in practice it creates illusion of attractive price plus the lower price range may create more liquidity.
Less shares outstanding means share price will go up, assuming market cap doesn’t change
You distributed the extra cash to shareholders. It will reduce company’s market cap.
No. That’s a dividend.
Same result. Company has less cash now, company is worth less.