Intermediate accounting II Class : Current events assignment Find a news story about a U.S. company that is changing its balance sheet in some way that should have covered in this course. For exampl
Running head: APPLE INC STOCK REPURCHASE 0
Apple Inc Stock Repurchase
Student’s Name
Course Name and Number
Instructor Name
Date Due
Apple Inc Stock Repurchase
Apple Inc, take the advantage of the new tax law with a lower corporate tax rate to bring back around $252 billion of the fund held abroad where the company said it targets to purchase around $100 billion of its stock (Nicas, 2019). In the first quarter of 2019, Apple Inc announced it will purchase additional $75 billion stock value. The stock repurchase is the decision for the company to buy its shares from the market place. The buyback activities boost the value of the stock and improve financial statement. The stock repurchase is usually done when the company has more cash on hand. Apple had more cash on hand after bring back idle cash is held in an offshore account. The company announced that its intention was to look after the business and make sure it continues to grow and be favorable for investment.
The excess cash was returned to the investors in the form of stock repurchase. Moreover, Apple Inc stated that the buyback would be a piece of positive news to shareholders because it will lead to stock prices rise even though still their critics who believe that the money spends should be channeled to other activities instead of benefitting few and wealthy investors with share repurchase. The decision will put money to wealthy investors instead of the money being invested to lower the cost of Apple products, pay better its workers in China and expand its plants (Nicas, 2019). The supporter of the buyback stock argues that the company only invests in something that would benefit them therefore the decision to repurchase stock impacts stock prices.
Furthermore, a share repurchase reduces outstanding shares which also promotes dividend per shares because less stock will be outstanding and therefore the shareholders will receive more dividend earning. The company projected the dividend earning to increases with 5 percent. However, shares repurchases will have some effect on the Apple balance sheet as it will affect cash held by reducing the cash on hand on the asset side of the balance sheet by the amount of the buyback. The stock equity value will reduce will the same value of money after the company repurchase share leading to low equity that can be claimed by the equity shareholders. The values of the treasury stock account will on the other hand increase to reflect the amount repurchases.
Overall the status of the balance sheet will reduce because of the reduction in cash and equity. Nevertheless, there are other reasons why Apple Inc, might have purchased the stock even though the information is not shared with shareholders or the public. The reason for share repurchase includes improving the company earnings ratio. The earning per share ratio indicates the number of dollars investors expect in a company to receive one dollar of that company earning (Nguyen, 2020). Therefore after share repurchase the earning per share increases which will attract investors and through that push the shares prices higher because of investor demand for the stock. The return on equity will improve due to share repurchase because there would be less equity as compared to the total net income.
This indicates how effective the management is in using assets to create profit. Still, share repurchases boost return on assets which measure how the company is profitable as compared to its total. These ratios are essential in inflating the stock prices as they attract investors to the company stock and due to demand and supply concept, the stock prices will increase to meet the demand in the market (Nguyen, 2020). The company buys its stock to ensure the value of the stock is in line with the company worth especially when stock is undervalued. The company is trying to change its capital structure in which the company will have less equity which means that the company will rely more on debts hence benefit through tax advantages. Still, share repurchase will help reduce shareholder influence because repurchasing shares reducing shares outstanding which prevents hostile takeover.
Reference
Nicas, J. (2019, April 30). Apple’s Plan to Buy $75 Billion of Its Stock Fuels Spending Debate. The New York Times: Retrieved from https://www.nytimes.com/2019/04/30/technology/apple-stock-buyback-quarterly-results.html
Nguyen, H. (2020, March 3). Stock Buyback: Why Do Companies Buy Back Their Stock? (You Must Know!). Wealthy Education Blog; Retrieved from https://wealthyeducation.com/share-buyback/