What are the disadvantages of buying back your own stock?

Today, you will find many companies purchasing back shares of their own stock. In fact, with the advancement in technology, the latter has been something that has been commonly going on. In this article, I will provide you with some of the disadvantages of buying back your own stock:

The first cons of buy back share is that you will get unrealistic picture.
You should know that some ratio would increase with share buyback process. Examples of these rations include ROA, ROE, and more. You should note that such ratio increases not because of the profitability issues but the reduction for shares one is expected to purchase. You should therefore know that the buyback process would represent a positive image, which will reflect to a better economic reality.
A firm could have some errors in valuation.
The second con of buy back shares is that firms could develop some errors in the valuation of these shares. This scope of errors could lead to a differential in valuation. You should know that in some situations the company would overestimate the prospects when it comes to doing so. Therefore, such errors would make the whole process of valuation to become futile.
Sinking dividend.
You should know that firms would spend a considerate amount of time purchasing their shares and the latter would cut their dividends simultaneously. You should note that when a company uses the money in the process they would be left with little to pay out as dividends. Therefore, if you are an investor and had checked the company financial statement during the period, the latter process would hamper you.
You would need to consider many things when it comes to buying back stock as discussed in many FP Markets Review. You should know that the process results in lower dividends to shareholders. It also provides unrealistic picture.

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