Good Company Should Have Treasury Stocks
After company collect many equity for years or period of time, company then can do 4 actions:
- Pay dividend to the share holders
- Pay off their debts
- Expansions
- Buy back their shares
Dividend payment usually make the share holders happy so they can increase total yield, excluding their capital gain. If company paid off their debts, company can be healthier therefore decrease interest cost, and increase profits and EPS. Expansions can increase company's profits,EPS, and therefore company share price.
What about buy back ? When company buys back their shares and the shares bought by company will go to Treasury Stocks inside Equity. Total shares will be decrease, therefore the "cake" is bigger for each company share holders. We can look for Visa and Master Cards company as an example of successful buy back. Basically after they buy back their company shares, company profit is still increasing and increasing.
And the result is bigger cake shared with fewer share holders. This is the best case that can happen and we should look for company like this.
One of indicator is the increase of company net profit is bigger than revenues.