What is Common Stock Repurchased?

Common Stock Repurchased refers to the acquisition of a company’s own common shares by the company itself. This reduces the total outstanding shares in the market and is recorded as a contra-equity transaction.

Why is Common Stock Repurchased Important?

Stock repurchases are important because they:

• Return Capital to Shareholders: Provide value to remaining shareholders by potentially increasing earnings per share (EPS) and share price.
• Signal Management Confidence: Indicate that management believes the company’s shares are undervalued and represent a good investment.
• Optimize Capital Structure: Allow companies to adjust their equity base and leverage ratios according to strategic and financial goals.

How is Common Stock Repurchased Calculated?

On the cash flow statement, Common Stock Repurchased is reported in the financing activities section and calculated as:

Common Stock Repurchased = Cash Paid to Buy Back Common Shares

On the balance sheet, the repurchase is recorded as:

Treasury Stock (Contra-Equity) = Number of Shares Repurchased × Repurchase Price per Share

Where:

• Cash Paid to Buy Back Common Shares includes any broker fees or transaction costs.
• Treasury Stock is the record of repurchased shares at cost, reducing total equity.

Additional Considerations

• Impact on EPS: Reducing the share count typically increases EPS, but the effect depends on the repurchase price and funding source.
• Funding Sources: Companies may use excess cash, debt, or combination financing, which affects their balance sheet and leverage.
• Regulatory Limits: Repurchases are subject to regulatory constraints, insider trading rules, and board-approved buyback authorizations.