What is the primary purpose of a stock buyback?

• A. Return capital to shareholders by repurchasing shares in the secondary market
• B. Increase cash reserves by issuing new debt
• C. Fund expansion by issuing more stock
• D. Pay executive bonuses early

Answer: (A)

Stock buybacks are a way for a company to return capital to shareholders by repurchasing its own shares in the open market. When the company buys back stock, the number of shares outstanding decreases, which can lift earnings per share and often support the stock price. It’s a flexible alternative to dividends for returning cash and can reflect management’s view that the stock is a good value or that excess cash should be returned to investors rather than held. The other options miss the core purpose: boosting cash reserves with debt, funding growth by issuing more equity, or paying bonuses early aren’t the primary aim of a buyback.