Will share repurchase affect EPS?

CFA Level II
#1

Will share repurchase affect EPS?

#2

Depends on how its financed. If you finance it with debt EPS will increase if the after-tax cost of debt used to repurchase shares is less than the current earnings yield, otherwise EPS will decrease, or if the two rates are identical EPS will not change.

#3

this is very well explained in Schweser if pre-purchase EPS/Price also called earnings yield is higher than after tax cost of borrowing to buy back shares then post share purchase eps will go up else will go down

#4

chowder Wrote: ------------------------------------------------------- > this is very well explained in Schweser > > if pre-purchase EPS/Price also called earnings > yield is higher than after tax cost of borrowing > to buy back shares then post share purchase eps > will go up > else > will go down fail,

#5

adavydov7 Wrote: ------------------------------------------------------- > Depends on how its financed. If you finance it > with debt EPS will increase if the after-tax cost > of debt used to repurchase shares is less than the > current earnings yield, otherwise EPS will > decrease, or if the two rates are identical EPS > will not change. correct

#6

what if using cash without resorting to debt? adavydov7 Wrote: ------------------------------------------------------- > Depends on how its financed. If you finance it > with debt EPS will increase if the after-tax cost > of debt used to repurchase shares is less than the > current earnings yield, otherwise EPS will > decrease, or if the two rates are identical EPS > will not change.

#7

unless the interest rate on the cash is higher than the earnings yield using cash to buyback shares is accretive to earnings

#8

I love seeing that this was 13 years ago, but I will still reply with something that might help the next person who wants to understand this intuitively, rather than remembering the formula.

If earnings from investing one dollar (earnings yield) is higher than the cost of borrowing one dollar (after tax cost of borrowing), then borrowing one dollar to invest will increase your total earnings.