250 words What is the impact of a stock repurchase on a comp

250 words

What is the impact of a stock repurchase on a company’s debt ratio? Does this suggest another use for excess cash?

Solution

STock repurchase is the form of usage of excess cash reserves in a corporation. Companies usually go for a stock repurchase when they are unable to come up with other investment avenues. For example companies in the Information technology sector would most likely repurchase its share from the public.

Debt ratio - Debt / Equity

As the stock repurchase is done, the equity portion reduces which would increase the debt ratio