By Matthew Kerkhoff
There are a number of ways that companies can boost earnings per share (EPS) to show earnings growth. The most obvious is by actually growing the business. Increasing top line revenue will translate into increased earnings, and increased earnings per share. Companies can also engage in cost reduction measures, allowing more of their top line revenue to pass through to earnings. A third, and popular method employed by today's corporations, is to buy back their own shares.
According to Data from TrimTabs Investment Research, corporate buybacks are at record levels. It's a trend that's been in place for many years, and it may be playing a strong role in driving the market higher.
There is a lot of chatter about "financial engineering" in the markets, and this is one example of that. When a company buys back its own shares, the number of outstanding shares declines. This has the effect of ... Log in or subscribe to continue reading.