⛓️ Do stock buybacks increase return on equity (ROE)?

Yes, stock buybacks can increase Return on Equity (ROE). Here's how:

1. Reduced Share Count: When a company repurchases its shares, the number of outstanding shares decreases. This reduces the denominator in the ROE calculation, making the metric more favorable.
2. Increased Numerator: The same net income is divided among fewer shares, increasing the numerator in the ROE calculation. This makes the ROE calculation more favorable because the company is generating the same amount of income with fewer shares of equity.
3. Improved Efficiency: By reducing the number of shares outstanding, a company can improve its operational efficiency and profitability, which can lead to higher ROE.

However, it's important to note that while stock buybacks can increase ROE, they should be used judiciously and in conjunction with other value-creating activities. Over-reliance on buybacks without ensuring sustainable profitability and operational efficiency can lead to negative consequences, such as slipping into negative stockholder equity.

In summary, stock buybacks can be a useful tool to increase ROE when used appropriately, but they should be part of a broader strategy to create value for shareholders.