What is Share Buyback?
A share buyback (or treasury stock transaction) is a corporate action where a company repurchases its own previously issued shares from the open market or shareholders, reducing the number of shares outstanding and total equity.
How It Works
- Cost method: debit treasury shares at repurchase cost, credit cash.
- Reduces shareholders’ equity as a contra-equity item.
- Retired shares are deducted from share capital; held shares remain in treasury.
- Increases EPS and ownership concentration for remaining shareholders.
Saudi Context
The CMA permits Saudi joint-stock companies to buy back up to 10% of their issued capital, subject to disclosure, board authorization, and a maximum holding period of 24 months before resale or cancellation. The repurchased shares lose voting and dividend rights while held in treasury.
Example
A Saudi company buys back 500,000 of its own shares at SAR 40 each. Journal entry: debit treasury shares SAR 20,000,000, credit cash SAR 20,000,000. Total equity decreases by SAR 20,000,000.