Work out how buying back shares changes book value per share
The idea
Book value per share after a buyback is (book equity − amount spent) ÷ (shares remaining). Whether it rises or falls depends on the price paid relative to book value per share. Buying above BVPS, the usual case for a profitable company, spreads less equity over the remaining shares and lowers BVPS. Buying below BVPS raises it; buying exactly at BVPS leaves it unchanged. For example, spending 240 on 6 shares at 40 when equity is 1,500 on 60 shares cuts BVPS from 25.00 to 23.33. The traps are forgetting to deduct the cash spent from equity, or dividing by the original share count.
In the app: 2 practice questions on this outcome, a narrated walkthrough with diagrams, spaced review that brings it back before you forget it.
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