Re:Apple Is Now More Than Double the Size of Exxon–And Every...
by coralreef on Tuesday February 24, 2015 @03:56PM
(#9103443)
Market cap is calculated by outstanding shares * share price. A company buying back its shares shouldn't affect the outstanding shares figure, because it already includes it.
However now that there are less publicly available shares available on the market, the share price should go up, as long as there is demand. By how much, I don't know, perhaps it ends up making Apple more valuable.
Re:Apple Is Now More Than Double the Size of Exxon–And Every...
by tinkerrr on Wednesday February 25, 2015 @10:03AM
(#9107010)
When a company buys back shares, the number of outstanding shares decreases. That's the whole reason for buying back shares. See http://www.investopedia.com/articles/investing/112013/impact... for a basic introduction to share buybacks.
Re:Apple Is Now More Than Double the Size of Exxon–And Every...
by coralreef on Wednesday February 25, 2015 @03:10PM
(#9109213)
I see, so even if outstanding shares is reduced, each share becomes "more valuable" as EPS will improve. So perhaps the market cap will end up balancing itself out?
This is incorrect. The reason is share buybacks, which Apple has been aggressive with. Remember, when the price was $100 last (split adjusted), its market capitalization was $700 billion. Today, it's price is $130, but the market capitalization is not $900 billion, but only $765 billion. This is because the number of shares outstanding has gone down significantly.
In this scenario, the price and market capitalization will not increase by the same percentage. In fact, it is possible for Apple to have a very good price return with no increase in market capitalization at all (consider it generates a lot of free cash flow to buy back stock).