IntroductionHistorically, Companies that have been profitable, have had excess cash on hand to be utilized towards either reinvestment, pay dividends to share holders or even repurchase their shares from the public. The decision for utilizing this cash from profits is made by these corporations on the basis of a number of critical factors of strategic importance and may vary from firm to firm even in any given industry. Reinvestments are made in order to remain competitive in a business and sustain growth in the industry while dividends and share buybacks are used to re-distribute wealth among the shareholders of the company.As the CFO of the company, I would recommend buyback of shares of the company for the purpose of redistributing money back to shareholders as it has a number of advantages as compared to payment of dividends. A mix of dividend payment as well as share repurchase also should not be ruled out, this kind of fund re-distribution can also help the company to gain traction in the capital market and keep their financial metrics in line with their organizations strategic objectives.

What is a Stock Buyback?A stock buyback, also known as a "share repurchase", is a company's buying back its shares from the marketplace. You can think of a buyback as a company investing in itself, or using its cash to buy its own shares. The idea is simple: because a company can't act as its own shareholder, the company absorbs repurchased shares, and the number of outstanding shares on the market is reduced. When this happens, the relative ownership stake of each investor increases because there are fewer shares, or claims, on the earnings of the company.1 In comparison to reinvestments and acquisitions, share buybacks are considered to be a fairly low-risk approach for companies to utilize their cash as it allows them to own a bigger portion of the company and therefore a bigger piece of the pie from the cash flows as well as earnings.

How does it help a company and its investors when it repurchases stock? There are a number of various reasons as to why companies would like to repurchase their own stock from the open market. Any company may choose to do so on for any of the following reasons Increased shareholder value A reduction in the number of total outstanding shares will naturally result in and increased Earnings Per Share (EPS) although if the earnings remain flat in comparison with the previous period. Stock Prices As the number of shares outstanding decreases i.e. supply decreases and demand is relatively higher, the price of the stock tends to surge. Buy backs are often deliberate in order to push the price of an undervalued stock or even to support the price of their stock Improved Financial metrics Due to a reduced number of shares outstanding, the company will enjoy a higher Return on Equity (ROE) and even a higher Earnings per share (EPS). Market Signals A buyback announcement made by the company often serves as a signal to the market that the company is becoming increasingly stable to and has a healthy and positive growth trajectory. Counterbalance Options/Grants Since companies issue additional shares to its employees in the form of bonuses/options/grants, it repurchases shares from the public in order to offset this increase in outstanding shares. Income Tax efficient returns to Investors A share repurchase tends to an increase in share holder value without having them to pay any additional income taxes

Conclusion/Recommendation

1. Janssen, C. (2004, January 6). A Breakdown Of Stock Buybacks. Retrieved June 10, 2015, from http://www.investopedia.com/articles/02/041702.asp

2.