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NISM Certifications · NISM-Series-XV: Research Analyst · Corporate Actions

In a buyback of shares through the tender offer route, which statement is correct as per the usual treatment in equity research?

A buyback reduces the number of outstanding shares, and if net profit stays unchanged, earnings per share rises. The company retires the repurchased shares, so the same profit is divided among fewer shares, while face value is unaffected.

  1. ABuyback reduces outstanding shares and, with profit unchanged, increases EPSCorrect
  2. BBuyback increases outstanding shares and reduces EPS
  3. CBuyback leaves outstanding shares and EPS unchanged
  4. DBuyback always reduces the face value of each share

Explanation

A buyback returns cash to shareholders and extinguishes the bought-back shares, so fewer shares remain. With the same net profit, EPS = profit / shares rises. It does not change face value or increase share count.

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