Issuing Common and Preferred Stock Generally Has Been Popular Among

question 103

Essay

Issuing common and preferred stock generally has been popular among corporations. However, some companies have bought back their common stock. For example, because its stock had declined under the uncertainty of possible health care reforms, Bristol-Myers Squibb bought 25 million of its own shares. Other companies have been awash in cash because of the decline in interest rates, layoffs to cut costs, and decreased need to make new investments. Quaker Oats purchased 4.8 million of its own shares for $323 million and plans to purchase 5 million more. The Quaker Oats treasurer was quoted as saying, "We spend on new products, we make acquisitions, we raise the dividend, and we still can't soak up the cash." Sun Microsystems cut its outstanding shares by 9 percent with an aggressive buyback program, and PepsiCo purchased 50 million shares at a cost of $1.8 billion. For what reasons would a company buy back its own shares?

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Definitions:

Random Price Movements

Refers to the unpredictability in the price changes of securities in financial markets, often driven by a variety of factors without a clear pattern.

Technical Analysis

An approach to assess securities by examining statistical data produced by market behavior, including historical prices and trading volumes.

Technical Analysis

The study of historical market data, including price and volume, to forecast future market behavior.

Earnings Forecasting

The process of estimating the future profits of a company, often used by investors to make informed investment decisions.