A Case Study Of Share Repurchases: Value Creation Or Financial Engineering

Abstract

As growth rates in the global economy have slowed, the use of financial engineering as a tool for managing earnings per share (EPS) has grown. Stock repurchasing is frequently used to increase earnings per share and perceived value. Leverage recapitalizations fund major repurchasing programs as firms take advantage of historically low interest rates. This case requires students to analyze the impact of repurchases on EPS and to also reflect on future growth prospects when payout amounts exceed net income over an extended period of time. It allows students to critically examine the inputs for valuing stocks using the total payout model. The case is constructed using real world information extracted from 10K reports and from recent company announcements. It can be used at the undergraduate (400) or graduate level. It is most suitable for Corporate Financial Management or Corporate Finance courses. The basics of financial statement analysis, time value of money, stock valuation, capital structure and payout practices are necessary to successfully navigate the case.