Value of business buy-backs *spawn

[Silent_Buddha]

Ideally you'd spend your money on investment into important things. But many large companies focus on deceptive growth through buy backs and junk while pocketing all the money they make and allowing the business and wages of lower salary workers to languish or get cut. It's a very scummy practice

Been too busy to post or even read most threads here recently but did want to comment on this misconception that buy backs are deceptive. Healthy companies will do that for a variety of reasons, not all of them purely for the benefit of shareholders, albeit that would be a good reason in and of itself as share holders by definition have partial ownership of said business.

But, going back to my point businesses have multiple ways to raise funds in order to fund a variety of endeavors, growth and new R&D are some of the more common activities that can require large funds. A coporation can go about that in multiple ways. Loans for example are one way to do that. Stock issuance is another. However, if there is so much stock already out there then the value of the stock will be diluted and you need to issue more shares in order to raise enough funds than if your stock value isn't diluted due to there being an overabundance of stock on the market.

Basically buying back stock not only serves the stockholders of your company but it also increases the value of the stock which in turn means that in the future if you need to raise money then issuing new stock is a viable alternative to taking out a loan.

So, cash flush corporations will often buy back stock if they have healthy cash reserves (ideally you want enough cash reserves that your corporation could survive an economic downturn that lasts more than 1 year) as a reward for people that have invested cash into the company (think of it as repaying a loan) and to increase the amount of money they can raise in the future if they choose to issue new stock in order to raise money for an expensive business activity (expansion, R&D, product development, etc.).

It also reduces the potential risk of a hostile takeover if you buy back stock such that the corporation itself holds a larger percentage of available shares. This is important as a controlling interest in a large corporation is often less than 50% of outstanding shares.

Regards,
SB

 

[Inuhanyou]

Been too busy to post or even read most threads here recently but did want to comment on this misconception that buy backs are deceptive. Healthy companies will do that for a variety of reasons, not all of them purely for the benefit of shareholders, albeit that would be a good reason in and of itself as share holders by definition have partial ownership of said business.

But, going back to my point businesses have multiple ways to raise funds in order to fund a variety of endeavors, growth and new R&D are some of the more common activities that can require large funds. A coporation can go about that in multiple ways. Loans for example are one way to do that. Stock issuance is another. However, if there is so much stock already out there then the value of the stock will be diluted and you need to issue more shares in order to raise enough funds than if your stock value isn't diluted due to there being an overabundance of stock on the market.

Basically buying back stock not only serves the stockholders of your company but it also increases the value of the stock which in turn means that in the future if you need to raise money then issuing new stock is a viable alternative to taking out a loan.

So, cash flush corporations will often buy back stock if they have healthy cash reserves (ideally you want enough cash reserves that your corporation could survive an economic downturn that lasts more than 1 year) as a reward for people that have invested cash into the company (think of it as repaying a loan) and to increase the amount of money they can raise in the future if they choose to issue new stock in order to raise money for an expensive business activity (expansion, R&D, product development, etc.).

It also reduces the potential risk of a hostile takeover if you buy back stock such that the corporation itself holds a larger percentage of available shares. This is important as a controlling interest in a large corporation is often less than 50% of outstanding shares.

Regards,
SB

When many companies are only buying back their stock to boost the value of their companies artificially and reward shareholders rather than invest the money like they should be doing, the merits end up ringing quite hollow.

There's no justification for energy companies spending only like 4 to 5 percent on investment or wage growth while using the rest of the profits for shareholders or higher ups which does not matter for productivity

 

[eastmen]

When many companies are only buying back their stock to boost the value of their companies artificially and reward shareholders rather than invest the money like they should be doing, the merits end up ringing quite hollow.

There's no justification for energy companies spending only like 4 to 5 percent on investment or wage growth while using the rest of the profits for shareholders or higher ups which does not matter for productivity

Except a lot of companies have stock awards as part of compensation. MS is one of those. What is great is that I would get my stock rewards but that stock would also pay me a dividend each quarter. I would say in a way its a great motivating device for employees. The better you do the more stock your awarded , the better you do and hopefully the company the higher the value of that stock and the higher the dividend is. You can then take that dividend and invest in more company stock or in other companies and continue growing

 

[Inuhanyou]

Except a lot of companies have stock awards as part of compensation. MS is one of those. What is great is that I would get my stock rewards but that stock would also pay me a dividend each quarter. I would say in a way its a great motivating device for employees. The better you do the more stock your awarded , the better you do and hopefully the company the higher the value of that stock and the higher the dividend is. You can then take that dividend and invest in more company stock or in other companies and continue growing

Even if that is the case in some companies in some sectors of the business which I will absolutely grant you a good point, it's unfortunately a much wider problem concerning the vast majority of the workforce with wages not tied to the stock market.

Im pretty sure McDonald's is not granting minimum wage worker some stock assets as incentive for good work ethic. They just go on psycho tangents about how giving wage hikes to the bottom rung in line with inflation would be insane and job destroying, when they clearly are making enough to afford supporting their work force properly. in combination with the union busting it's an unfortunate thing.

*Edit* I think I'll stop here. Don't want to get busted talking personal values and politics in the PS5 thread. You both raised good points

 

[eastmen]

Even if that is the case in some companies in some sectors of the business which I will absolutely grant you a good point, it's unfortunately a much wider problem concerning the vast majority of the workforce with wages not tied to the stock market.

Im pretty sure McDonald's is not granting minimum wage worker some stock assets as incentive for good work ethic. They just go on psycho tangents about how giving wage hikes to the bottom rung in line with inflation would be insane and job destroying, when they clearly are making enough to afford supporting their work force properly. in combination with the union busting it's an unfortunate thing.

Oh I don't disagree with you about minimum wage workers. I do however think that it should be expanded to those minimum wage workers. The thing I will say is that 18-25 year old me didn't really understand stocks at all or 401ks so I think a lot of it would be wasted on younger minimum wage workers. I think more financial literacy is important. But at the same time if your in your 40s making minimum wage I think you have more to worry about than what is happening on the stock market

 

[Silent_Buddha]

Even if that is the case in some companies in some sectors of the business which I will absolutely grant you a good point, it's unfortunately a much wider problem concerning the vast majority of the workforce with wages not tied to the stock market.

Im pretty sure McDonald's is not granting minimum wage worker some stock assets as incentive for good work ethic. They just go on psycho tangents about how giving wage hikes to the bottom rung in line with inflation would be insane and job destroying, when they clearly are making enough to afford supporting their work force properly. in combination with the union busting it's an unfortunate thing.

*Edit* I think I'll stop here. Don't want to get busted talking personal values and politics in the PS5 thread. You both raised good points

I wouldn't be so sure about that.

Employee Benefits

www.mccourtesy.com

They have an employee stock purchase plan as is common at most publicly traded companies. It's one way to try to incentivize people to work harder to increase the value of their shares in said company. And as with most publicly traded companies it's an option. Companies by and large don't just given shares since the value of shares are variable, hence employees will have an option to buy shares at typically below market rates.

Regards,
SB

 

[orangpelupa]

Can someone please spin off the discussion into different thread?

 

[eastmen]

I wouldn't be so sure about that.

Employee Benefits

www.mccourtesy.com

They have an employee stock purchase plan as is common at most publicly traded companies. It's one way to try to incentivize people to work harder to increase the value of their shares in said company. And as with most publicly traded companies it's an option. Companies by and large don't just given shares since the value of shares are variable, hence employees will have an option to buy shares at typically below market rates.

Regards,
SB

An employee stock purchase plan is different than stock awards however. With a purchase plan you are taking a % of your check that at the end of the quarter is used to do a bulk purchase at a discount. With Stock awards you are getting a bonus paid in stock based on how well you hit your metrics .

It's great to have access to the purchase plan but if you are making minimum wage or under $20 an hour it could be hard to go without a % of your check to buy stock. When I was with MS I did both so I was able to obtain a lot of stock quickly which is great

 

[Silent_Buddha]

An employee stock purchase plan is different than stock awards however. With a purchase plan you are taking a % of your check that at the end of the quarter is used to do a bulk purchase at a discount. With Stock awards you are getting a bonus paid in stock based on how well you hit your metrics .

It's great to have access to the purchase plan but if you are making minimum wage or under $20 an hour it could be hard to go without a % of your check to buy stock. When I was with MS I did both so I was able to obtain a lot of stock quickly which is great

That could be, I wouldn't know. Even when I was working minimum wage jobs, I always had money available to invest if I wanted since I didn't spend my money frivolously (used TV and furniture instead of new, etc.). Grew up with parents and grandparents who taught me how to save money by only spending within a budget and not exceeding that budget for anything other than emergencies. .../shrug. I guess growing up poor we just naturally developed skills related to saving money.

Regards,
SB

 

[eastmen]

That could be, I wouldn't know. Even when I was working minimum wage jobs, I always had money available to invest if I wanted since I didn't spend my money frivolously (used TV and furniture instead of new, etc.). Grew up with parents and grandparents who taught me how to save money by only spending within a budget and not exceeding that budget for anything other than emergencies. .../shrug. I guess growing up poor we just naturally developed skills related to saving money.

Regards,
SB

Yes but when did you have a minimum wage job ? I'm saying if you are in your adult years and living on your own or worse supporting a family on a mc donalds job you are going to not be in a postion to take advantage of an employee stock purchase plan

 

[Silent_Buddha]

Yes but when did you have a minimum wage job ? I'm saying if you are in your adult years and living on your own or worse supporting a family on a mc donalds job you are going to not be in a postion to take advantage of an employee stock purchase plan

I was living on my own and had been for years. I just didn't spend 10's of dollars every weekend on drinks or 10's of dollars a week on cigs or 100's of dollars at restaurants when I went out with friends. Frugal living meant that I could easily afford to invest in my future, even while paying rent, utilities, etc.

Regards,
SB

 

[eastmen]

I was living on my own and had been for years. I just didn't spend 10's of dollars every weekend on drinks or 10's of dollars a week on cigs or 100's of dollars at restaurants when I went out with friends. Frugal living meant that I could easily afford to invest in my future, even while paying rent, utilities, etc.

Regards,
SB

That is amazing doing that on 7.50 an hour or $300 a week $1200 a month.