How do stock buybacks affect capital structure?
Alrighty,
You have 10M in Eq. Value, 10M in Debt, 5M in Cash, with a total EV being 15M. If you conduct 5M worth of buybacks, I understand Eq. Value is now 5M, 10M Debt remains, and Cash is now 0M, giving you the same EV of 15M.
However,
Isn't capital structure changed in the sense that we had an Equity/Total Capital percentage of 50% and now it is 33%? (10M/10M + 10M for the first one and 5M/10M + 5M after buybacks)?
Trying to wrap my head around this concept
In a theoretical situation the stock price would increase inversely with the decrease in number of shares outstanding which would keep your market cap the same... works out differently in the real world but thats the idea
So immediately there would be no change to the capital structure in terms of EV but its actual component percentages would change, but theoretically, the component percentages will become the same after the stock price increases but EV will end up changing? (Apologies if that was worded God awfully)
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