Hello:
When a company buys back stock I believe there is a debit to an equity contra account. This lowers the book value. From a book standpoint, the buy backs decrease cash. What I struggle with is the fundamental changes to equity value and why EPS/ROE would increase as the shares are still issued. Is this because the company does not pay itself so therefore EPS is higher to investors? I understand that the act of a buy back itself can be a positive signal for the future of the company, but what are the fundamental changes both current and forward looking?
Are issued shared not the same as outstanding shares? From my understanding a company has to file with the SEC for any shares they may issue and they can “shelf” those shares for the future. This can be used to raise capital or stock based compensation. Is this included in diluted share count?
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