Buyback EPS calculator

How a buyback moves earnings per share

A buyback lifts EPS by shrinking the number it divides by. Start with the shares retired: dollars spent over the average price paid. Take those off the starting count. Then add back every share the company issued over the same stretch, for stock awards, option exercises or anything else, and what's left is the net share count. EPS after is net income over that count. Hold net income fixed and the change in EPS is the old count over the new count, minus one. That's the whole formula. The shares handed to employees are the line people skip, and on a lot of cash flow statements they decide whether a buyback helps at all, because a company can spend heavily on repurchases every year and still end each one with roughly the share count it started with.

A worked example on the defaults

A hypothetical company starts the year with 200,000,000 shares and earns $400,000,000. EPS is $2.00. It spends $400,000,000 on its own stock at an average of $50, which retires 8,000,000 shares. Over the same year it issues 6,000,000 new shares in stock awards. So the net count ends at 198,000,000, and EPS rises to $2.0202. That's a gain of 1.01%. With no awards, the count would have fallen to 192,000,000 and EPS would be $2.0833, up 4.17%. The awards ate most of it. Seen from the cash side, the company paid $400,000,000 to shrink its share count by a net 2,000,000, or $200 for each share that actually left the count, four times the $50 average it paid in the market. Weigh that figure when you ask whether buybacks are good for shareholders of a particular company.

Where the reported numbers differ

Reported EPS divides by the weighted average share count for the period. A buyback done in the last month of the year barely touches that year's figure and shows up in full the next. Diluted EPS goes further and counts in-the-money options and unvested stock through the treasury stock method, so the diluted count can sit well above the basic one. Flat net income flatters the result a little. Cash spent on stock stops earning interest. Borrowed cash costs it. For the trend over several years, check the share count history in the filings and set it beside the repurchase line on the cash flow statement, year by year, since a count that stays flat while repurchases run into the hundreds of millions tells you where the money really went. When a company sells shares, the share dilution calculator runs the same sum the other way.