A buyback is when a company uses its own cash to buy back shares from the market. Those shares are usually cancelled, so the number of shares falls. A rights issue is the opposite direction: the company issues new shares and offers them to existing shareholders, usually at a discount.
Buybacks
Because there are fewer shares, each remaining share represents a larger slice of the company. If profit stays the same, earnings per share can rise. A buyback returns cash to shareholders who sell, while everyone who stays owns a bigger proportion.
| Dividend | Buyback | |
|---|---|---|
| Cash paid | To all shareholders | To shareholders who sell |
| Shares afterwards | Unchanged | Fewer |
| Who chooses | The board decides | Shareholders decide whether to sell |
| Regular or one-off | Often regular | Usually a one-off event |
Both return cash, but they affect the share count differently.
Rights issues
In a rights issue, existing shareholders are offered the chance to buy new shares in proportion to what they already own, often at a price below the market price. They can take up the offer, sell the right to someone else, or do nothing and accept dilution.
Your entitlement = (Shares you own ÷ Total shares) × New shares issued
Corporate action simulator
See the conceptual before-and-after of the actions companies take that affect their shares.
Before
- 100 shares
- ₹1,000 per share
- Total ₹1,00,000
Conceptually after
- 200 shares
- ₹500 per share
- Total ≈ ₹1,00,000