If a company uses its surplus cash reserves to buy-back its own shares, the total equity of the company will increase by the equivalent amount of cash spent.

Question

Quizplus · Accepted Answer

When a company buy backs its own shares, the number of shares outstanding decreases, which in turn increases the value of each remaining share. This does not result in an increase in total equity as the cash spent in buying back shares is no longer a part of the company's assets.

If a Company Uses Its Surplus Cash Reserves to Buy-Back