Share buy backs

[Snoopy]

Can someone please explain to me the purpose of company share buy backs?

Here is a quote from Chapter 18 of "The Buffettology Workbook" which should go a long way to answering your question.

"Let's say a company has 100 million shares outstanding and Warren owns 10 million of these shares, which equates to owning 10% of the entire business. If the company goes into the stock market and buys back 40 million of its shares, it will have only 60 million shares outstanding. Warren's ownership interest in the business would have increased from 10% to 16.6%. His ownership in the company increased without investing any more money. The company's own capital was used to increase his ownership interest."

"Now consider this: If the company had paid out the money that it spent on buying back shares, Warren would have had to pay income tax on his portion of the dividends, which means he would have about 30% less money to invest with. By having the company repurchase its own shares, Warren is able to avoid the tax man and in the process increase his own percentage of ownership of the business."

SNOOPY